Tuesday, March 17, 2020

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‘An ominous sign’

We got our first look at how coronavirus is impacting the U.S. economy on Monday.

And the signal was bleak.

The New York Fed’s latest Empire State manufacturing index fell by the most on record and general business conditions are now at their lowest level since 2009.

This report, based on survey responses collected between March 2-10, suggests to some economists an annualized drop in GDP of at least 3%.

But economic data collected from across the country in March and beyond is expected to be far uglier than Monday’s first look how coronavirus is harming economic growth.

“The Empire State survey, the first manufacturing survey we have received in March, is an ominous sign that the direct shock hitting certain segments of the services sector is spilling over into a broader sentiment shock that will affect all sectors,” JPMorgan economist Jesse Edgerton said in a note on Monday.

“Our model of the risk of recession beginning within one year based on the economic data rose by 2.4 [percentage points] on this news, or by about 3.5 standard deviations in the distribution of daily changes in the model. We expect the coming weeks to bring additional severe deterioration in many of the economic indicators that we follow.”

Less than a month ago, The Morning Brief highlighted JPMorgan’s recession model after it showed recession risks falling to their lowest level in 15 months.

Now it seems a recession is the base case for most economic forecasters.

Jonathan Miller at Barclays said Monday following the NY Fed report that, “Although the Empire State Survey is not one of our favored indicators of US manufacturing activity, today’s reading is one of the first pieces of information we have received that seemingly confirms a strong pullback of activity as the COVID-19 outbreak has spread within the U.S. and intensified.”

And to think we’ve only just begun taking the measures that will be required to successfully confront and slow the spread of the coronavirus, economically and otherwise.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

• 8:30 a.m. ET: Retail sales advance MoM, February (+0.2% expected, 0.3% in January); Retail sales excluding autos and gas MoM, February (0.3% expected, 0.4% in January)

• 8:30 a.m. ET: Industrial production MoM, February (0.4% expected, -0.3% in January);

• 9:15 a.m. ET: Capacity utilization, February (77.1% expected, 76.8% in January)

• 10 a.m. ET: JOLTS job openings, January (6,401 expected, 6,423 in December)

• 10 a.m. ET: NAHB Housing Market Index, March (74 expected, 74 in February)