Official data next week will show the impact the coronavirus lockdown is having on the US economy – and it will be ugly.
Wednesday’s numbers are likely to show that industrial production fell in March and that retail sales did too, as a drop in spending on non-essential items outweighed increased grocery buying. The falls will mean that both output and sales fell in the first quarter, implying that gross domestic product (GDP) very likely did so too. Because the lockdowns only took effect later in the month, April’s numbers will be even worse.
What’s important in this context are companies’ expectations: if they expect a swift rebound in output they will keep workers on their books. We’ll get an idea of these from surveys of manufacturers by the New York and Philadelphia Feds. They could show expectations for economic activity dropping to levels close to the low points in 2009.
In the eurozone, we’ll get official data on industrial production in February. This might show only a small drop, as only Italy was locked down then. This will of course be no comfort: next month’s data are likely to show a huge drop.
Equity investors will get more bad news. Figures from the US Treasury could show that foreign investors became net buyers of US equities in the 12 months to February, having been heavy sellers for months previously. This suggests that investors’ sentiment towards stock markets was improving before the virus hit. Which is bad news, because stronger sentiment has in the past predicted lower equity returns. If history is any guide, though, the disappearance of this bullish indicator is outweighed by the fact that the dividend yield on the All-Share index predicts high returns – but whether history actually is a guide is not certain.
Amid all this gloom there might be two glimmers of hope. One might come from China, where growth in the M1 measure of the money stock could rise. Historically, this has been a lead indicator of rises in output growth – although the rate of growth in the money stock is still so low as to point to only a mild recovery.
Another should come from the eurozone, where official data should confirm that CPI inflation fell last month to 0.7 per cent thanks largely to lower oil prices – although the core rate (which excludes food and energy) also dipped. This will remind us that there is ample room for looser monetary and fiscal policy in order to get inflation back to target.
