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Economic data is much worse than feared on wall street:”the Economy is clearly in shambles”

Экономические данные намного хуже, чем опасались на Уолл-стрит:«Экономика явно в руинах»

Reports of consumers and producers for March showed that the blow to the economy of coronavirus was deeper in the first week of the shutdown than expected.

March retail sales fell by 8.7%, which is the largest index of government data, and manufacturing activity in new York reached a record low, dropping to a shocking negative 78.2 percent.

“The economy is clearly in shambles,” said Chris Rupke, chief financial economist at MUFG Union Bank.

Reports of consumers and producers for March showed that the blow to the economy of coronavirus was faster and deeper in the first weeks of stay than expected.

March retail sales fell by 8.7%, which is the largest index of government data , and manufacturing activity in new York reached a record low, dropping to a shocking negative 78.2 percent . The volume of industrial production decreased by 5.4%, the largest decline since 1946, and manufacturing decreased by 6.3%, partly reflecting the decline in production of cars by 28% after the plants closed.

Economic reports showed a double blow to the state of the outages in mid-March on the two pillars of the economy – consumers and business. The report was even more dismal than expected, and foreshadowed an even worse reduction of activity in April when the closure States affected region, accounting for more than 90% of the economy.

The mood of homeowners have suffered the most at the beginning of April, falling the most in a month since its creation 35 years ago. Confidence builders for single-family homes fell by 42 points to 30, the lowest level since June 2012, according to the latest housing market index from the National Association of home builders / Wells Fargo.

March retail sales fell by 8.7%, which was a record fall, with the only sign of activity at the grocery stores and liquor stores, where sales increased by 25.6%. Economists expected an 8-month reduction in monthly sales. The consumer is 70% of the economy.

“The economy is clearly in shambles,” said Chris Rupke, chief financial economist at MUFG Union Bank. “No one is buying cars and 25.6% less, nobody buys furniture, 26.8%, and places for food and drink fell by 26.5%”.

It is expected that the economic downturn that began in the first quarter, reaches its minimum in the second quarter. Economists expect the unprecedented drop in GDP by more than 30% in the second quarter. Economists at JPMorgan expect a 40% reduction in the second quarter, in addition to the 10% reduction in the first quarter.

Already negative GDP forecasts for the first quarter can also deteriorate, showing that the economy began to contract rapidly, when the company closed, the state was ordered residents to stay at home, and the President, Donald trump told Americans not to go to restaurants and to practice safe distancing.

But ward McCarthy, chief financial economist at Jefferies, said that retail sales data clouded the prospects for GDP in the first quarter because some categories of sales data used for its calculation, in fact, improved. They include building materials, an increase of 1.3%, as well as health and self-care, which grew by 4.3%.

“The bottom line is that consumer spending has fallen sharply after they remained relatively stable over a long period of time,” says McCarthy. “In habits the costs have been substantial replacement, as consumers tried to cope with the social distancing. The consumer sector will be a drag on Q1 and Q2, but it will be difficult to estimate the size of the resistance.”

March retail sales also showed a slight increase in online purchases, only 3.1%, although the consumers make purchases from home. The Ministry of trade acknowledged that it was difficult to collect data, as many businesses closed down.

“Retail sales in the fourth quarter of 2008 fell more than 8%, but it was more than three months,” said Rupke. “It was only one month. … Consumers are walking home, daring to go to the grocery store. Today the lights go out, and, as far as we can tell, next month will be even worse.”

A survey of production in the Empire state largest dropped to a historic low, much cooler than any value during the financial crisis, and more than twice the expected decline in activity in the new York region, the most affected by the virus.

“Overall, today’s production figures indicated the expected slowdown in activity, but somewhat earlier and more widespread than previously thought,” noted economists at Citigroup. They said it was amazing the drop in the depth of the clothing production is 16.5% and furniture by 10%.

John hill, senior Treasury strategist at BMO, said the deeper decrease of the data raises concerns that a sharp downturn turns into a depression, although $ 2.2 trillion in budget spending and monetary actions the fed can prevent this and help to rebound that many economists expect to start in the third quarter.

“Actually, this will depend not only on the reduction of infection and availability of vaccine, but also on how the economy will be able to renew and how quickly, given the depth of contact with the labour market,” said hill. To date, just three weeks ended April 4, more than 17 million workers have applied for unemployment benefits, which is more than during the great recession.

“This is a very different types of recessions. One of them is the broader economic impact. It’s the sudden stop. it is not surprising that the situation is economically distorted, but we don’t play by the typical economic rules, ” said hill. “We play by the rules of health policy. Rates [of the Treasury] would be difficult to sell any meaningful way.”

The Department of Commerce began tracking retail sales data in the early 1990-ies, but the chief economist at Grant Thornton Diane Swank said that the decline was even worse than the fall in January 1987, more than 7%. the change that no longer allows deduction of interest on debt on a credit card or car loan.

Investors reacted to the March economic reports, dropping stocks and rushed to the safety of Treasury bonds.

The Dow fell more than 2.5% at midday, while the retail sector was the one most affected. XRT, SPDR S & P Retail ETF fell more than 4.5%.

On the Treasury market investors traded bonds with a longer duration, such as 10-year-old, more than a shorter, two-year promissory notes. This creates a so-called smoothing trade, meaning that two spreads converging that is a sign of economic coercion. 10-year-old was 0,66%, while the 2-year yield was at 0.20% .

Poor data also weighed on inflation expectations, which led to a further decline in market inflation. Traders look at the difference between the benchmark and Treasury bond adjusted for inflation to measure inflationary expectations. Currently, the market shows inflation expectations at the level of 0.87% on average over the next five years, which is significantly below the target of the fed of 2%.

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