Weekly Economic Update June 8, 2020

Brad StevensUncategorized

June was always on of the months that I looked forward to the most.  Here in Minnesota our school year would end around the 10th or so and then freedom.  There were so many wonderful, innocent memories of June.  We lived close enough to the Old Met Stadium so we would often ride our bikes to catch an afternoon game, sitting in the left field stands getting toasted in the sun.  No sun tan lotion, we just sat there, enjoyed the game and burned to a crisp.  There were forays to Lake Nokomis to catch bull heads.  Once we learned how to skin them correctly and not get stung it was a lot more fun.  Unless it rained, the tv was off and we were outside until dark.  As we got closer to July 4th the fireworks started coming out.  Our favorite was the Cap Bombs or Cap Rockets.  They were a rocket with a metal plunger as a nose cone.  You put a paper cap under the plunger and threw it in the air.  When the nose cone hit the ground the cap exploded.  Simple fun for a much more innocent age. 

The numbers across the board that I am seeing reflect indications that we might be past the peak on a number of fronts.  The Covid numbers nationwide are trending away from peaks in new cases, hospital and ICU usage. The economic activity appears to be picking back up reflecting we may have passed the trough early in May.  The Manufacturing ISM report showed a small uptick from the April number of 41.5.  In May the PMI rose to 43.1.  All the other indicators in the report improved off of April lows.  New orders are continuing to contract but at a slower level.  Production the same.  As expected commodities up in price surround oil, alcohols, and related personal protective equipment.  The majority of commodities remain in wide supply with weak prices, some even falling yet.  The comments from business owners are more positive.  Many firms have stock available to meet the demand when things start up again.  As shared in prior posts, the primary concern is productivity under social distancing, cleaning protocols and other new demands when business re-opens.  Construction projects that have been put on hold are slowly coming back on line.  Sadly, much of the construction equipment now will likely be needed this summer to clear the rubble of the looters.

The May Federal Reserve Manufacturing Indexes started coming in last week.  All of them were well off the bottoms of April.  Dallas was -49.2 against April at -74.  Richmond was -27 against April at -53.  Kansas was at -25 compared to -62 in April.  The Empire State, New York manufacturing index was at -48.5 as reported in mid May, compared with -79 in mid April.  Every indication is that June will continue to show marked improvement. 

The non-manufacturing ISM report released last week reflects that services and retail have passed the bottom and are starting to rise.  The ISM report came in at 45.4 in May compared with 41.8.  This reflects a slowing of the contraction. Business activing in non manufacturing increased from 26 in April to 41 in May that is a large jump that was well received.  From all indications in the report along with recent comments in the retail area, there is a pent up demand that is now being let loose.  In Minnesota retail stores, non-big box and grocers, opened this past week to strong demand.  At least for the next couple of weeks, person to person retail and services should produce impressive numbers.  We are by no means out of the woods, but the first green shoots of the recovery appear to be impressive. 

Two last quick hits for the week.  The jobs report on Friday was really good news.  Embedded in the report was an increase of 225,000 for manufacturing jobs in May.  This is great compared to the April number of -1,324,000.  While one number is not a trend, do not be surprised if the unemployment rate continues to trend down and non farm payrolls now rebound.  It should not be long before we are under 10% unemployment rate.  Lastly, Gold prices which increased as it became a safe haven in March appears to have leveled.  This is a key indicator of coming inflation.  For now no inflation is on the horizon.

Have a great week.

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