When I was a kid, February was a fun month. Outside of having Winter finally break and experiencing the first signs of Spring there was always Valentine’s Day which to me was more like the Halloween of the early part of the year. Each year my classmates would exchange cards with corny puns on them which I cared less about.
The key was the candy. Getting a sugar high was always the goal. February was also the only month that we had two holidays, Lincoln’s Birthday and Washington’s Birthday. As long as both the 12th and the 22nd were on week days we had those days off as a holiday. That made the shortest month of the year even shorter. Then came along the Federal Government and spoiled the fun. They took a holiday away, combined the celebration of two Great U.S. Heros into one day and called it President’s Day. My preference was to go the opposite direction and celebrate the births of all the Presidents, providing 34 more days off. Oh well.
Manufacturing numbers for February are coming in hot
The Empire State Manufacturing report came in at 12.8 against the January number of 4.8, which was a nice improvement over December already. No one expected a number this high. The Philadelphia Fed Manufacturing report came in at 37 against the January number of 17. The level at 37 tripled the expectations. No one saw this number coming. Both reports indicate that new orders skyrocketed in February and production is struggling to keep up. These numbers are the highest since February of 2017, right after the inauguration. Consumer demand is playing a part as domestic demand has been growing, but not in the usual areas you would expect, autos and housing. A big part seems to be export orders, but the reports did not detail exactly what the orders were or who they were going to. The ISM report will be out on March 2, that will give us a more detailed report as to what might be the push here. For now the outlook for the first quarter of 2020 seems extremely rosy.
Retail brick and mortar continues to take hits
The Redbook report for February is showing same store sales dropping .2% after a january number of .7%. Since the first of the year, month over month same store sales have now dropped almost 1%. January and February are typically a slow period for retail, however, overall retail, online and in store are actually up. The issue is much more about online purchases, including groceries. That segment is growing significantly while in store sales are plummeting. Watch for continued clearance items piling up as well as more store closings being announced.
While the U.S. is doing well, the global economy is not
Production in Europe continues to falter as uncertainty abounds in Britain, Germany and France over the strength of their economies. Negative interest rates in the Scandinavian countries for prolonged periods are raising havoc in the region. Even with negative borrowing rates, there is not enough incentive to have a company borrow to expand. That is a scary proposition. China continues to implode with the coronavirus impact. Many factories remain shuttered which is likely why our production is rising rapidly. Once the virus peak is over in China, will their orders return? Hard to say, by that time, will the virus have spread internationally to a point where factories shut down elsewhere and the Chinese products are not needed? Good questions which will be answered in time. For now the U.S. looks really strong. We still have to see if the coronavirus gets imported to the U.S. We also need to see if the normal caution arises as the election nears. Typically in the 3rd quarter businesses start to pull back until they see what the outcome is the election is.