Displaying items by tag: economy

(New York)

Investors are doing a lot of economic data analysis these days. As the economy picks up (for the most part) after the COVID lockdown, everyone is trying to guess the trend of the expansion. Well, in our search for new economic data, we found something that really stuck out to us as a positive: lumber demand. The whole lumber sector got hurt very badly in the first quarter as COVID shut down real estate construction. The collapse in demand led to a halt in production in the lumber industry. However, lumber demand for construction projects has come back faster than anyone anticipated and the supply chain cannot even keep up. Lumber prices rose 60% in the second quarter alone.

FINSUM: We think it is an excellent sign that builders and consumers have enough confidence in the economy and their financial positions to be able to create this kind of demand. V-shaped recovery?

(New York)

Morgan Stanley made a bold call this week. Their research team has officially adopted what seems like a fairly risky position on the economic recovery: they are saying it will be of the much sought after v-shape. The bank has been calling for a short and sharp recession for some time, but this is the most optimistic outlook they have published. According to Morgan Stanley’s chief economist, “Recent upside surprises in the incoming growth data and policy action have increased our confidence that this will be a deep V-shaped recession”.

FINSUM: We still don’t think this is going to be a v-shaped recovery. More like a U-shape or more likely a Nike swoosh shape. The depth of firings combined with the probable corresponding slow pace of consumer spending will hold back the pace of the recovery.

(New York)

The New York Times has published an interesting piece this week which argues that markets and investors are ignoring an ugly and disastrous reality: that the economy is suffering a huge and largely unprecedented collapse in demand. New data out of Europe and Japan, as well as US manufacturing demand, this week showed that demand fell sharply in May, a sharp contrast to the employment jump. The NYT argues that this systemic fall in demand will take time to play out, but that the huge decline in employment and change in behaviors will cause a rupture in demand that will play out over years.

FINSUM: The NYT piece is very bearish. We held off on covering it until new data was released overnight showing a big fall in demand.

(Washington)

Friday saw the release of what appeared to be absolutely stellar jobs numbers. Instead of the jobless rate potentially hitting almost 20%—which was the forecast—the opposite happened: the unemployment rate fell to 13.3% in May from over 14% in April. Markets soared. However, the reality is that those numbers are both highly inflated, and unrealistic. Firstly, the Bureau of Labor Statistics counted those who are currently furloughed and unpaid as “employed”. It admitted that if it hadn’t done so the unemployment rate would have jumped to over 16%. Secondly, the big jump in hiring was at least partly, and probably hugely, because of an artificial government rule in the PPP program. Small businesses had to hire employees back by the end of June to have their loans turn into grants, so there were artificial incentives to put people back on payroll even I the absence of true business demand.

FINSUM: If you take these two facts together, it becomes clear that the May data is not really a reflection of an economic pickup, so don’t make any predictions based on this.

(Washington)

The Center for Disease Control made a pretty worrying announcement today. The CDC has previously warned that American could see a big uptick of the COVID-19 virus in the Fall, when temperatures cool down and flu season ramps up. It echoed that more strongly this week, citing evidence that the virus is gaining ground in the southern hemisphere as their winter takes hold. According to Robert Redfield, head of the CDC, “We’ve seen evidence that the concerns it would go south in the southern hemisphere like flu [are coming true], and you’re seeing what’s happening in Brazil now … And then when the southern hemisphere is over I suspect it will reground itself in the north”.

FINSUM: The reality is that a vaccine will not be ready before the next flu season starts, so it is pretty easy to imagine that the virus might see a big second wave in the Fall that leads to another lockdown.