April showers bring May Flowers. Hopefully you are going to be able to get out and get some plants soon. Before long the Lilacs will be in bloom, shortly after that the Iris’s should pop forth, the tulips seem a bit behind this year in MN. Once June hits the gardens should be ablaze with color brightening every ones mood.
Over the past week we have received a number of economic numbers that show the early to hopefully mid impact of the economic shut down. Import prices in March fell 2.3% primarily on petroleum price declines. Embedded in the report were the non-petroleum prices. Consumer and manufacturing import prices were flat showing that inflation is again not an issue, but deflation is a real concern. Export prices fell 1.6%, which was across the board. Both ag related and non-ag related products fell in price on our export side. This is not a surprise as the US was impacted later than much of the Asian and European world. Continued stress in trade is expected for at least a month. The exception here will be imports from China for much of our medical supply needs. The government is looking at declaring certain items as essential going forward and requiring them to be made domestically. We will have to see what that list will include, but suffice it to say, much of the medical world will be turned on its head.
Retail sales plummeted which was not a surprise. Overall retail sales fell 8.7% as wants have been replaced with needs. Retail staples were good, but non-essentials and eating out collapsed. With many retail industries shut down, including services, the number was surprising only in it was not a deeper loss. When you pulled out autos, the retail sales number was only down 4.5% which was not bad considering. The auto industry is in deep trouble. With sales off on new vehicles, parts suppliers are going to feel a great deal of pain. Any supplier that was on the ropes before this shut down may not recover. It is not likely at this point that reopening the economy will have any major positive impact on the auto industry. With consumers unable to meet rent, mortgage or other essential expenses, and missing at least 3 or more paychecks, purchasing a big ticket item is off the table for the long term.
Industrial production fell 5.4% in March, manufacturing production fell 6.3%. Many manufacturers were considered essential which provided a bottom shelf for this number. Looking ahead though, industrial capacity utilization fell from 76.95 in February to 72.72 in March. This number hit a low in 2009 at 67% during the great recession. April and likely May might reach or exceed that floor number. As a point of context, over the past two years the number floated between 77% on the high and 76% on the low. Above 80 to 81% business needs to expand by purchasing new equipment to be the most efficient. Based on the recent numbers there does not appear to be any need for new equipment for business in the near term. This will hold any economic recovery from growing too quickly.
Oil rig numbers also continue to drop rapidly, last week hitting 529 in North America. This is down from 602 and with oil closing Friday at $18, the drop is likely to continue for some time. Today’s opening, April 20, at just over $11.00 is not going to help anything.
When the US begins to open, we need to be careful about the pace of growth. Many firms have used about all the reserves they have just to be prepared to reopen. A rapid return of economic growth will drive many firms into bankruptcy. With growth comes cash being absorbed into the balance sheet. Without sources of capital, firms have a limited sustainable growth level that needs to be watched. While we would all like to get back to work soon, metered and sustainable growth is more important.
Have a great week.