April 15, 2020
As we discussed at the beginning of the month, as we start seeing the March data roll in, reflecting the abrupt stoppage of the economy, it's going to be ugly. We're getting it.
Here's what it looks like …
And, as suspected, the media has pounced …
The month-over-month change in retail sales plunged at a record rate. Industrial production plunged at the sharpest rate since 1946. The housing survey that measures builder opinion on current and futures home sales collapsed.
But remember, the losses reflected in these data (and coming data) have already been offset by intervention from the Fed, the Treasury and Congress — intervention that replaces more than a quarter of U.S. economic output.
So, it's a matter of, is it enough to plug the gap? That will be determined by how long this plays out — the timeline on getting back to normal. Fair to say, it won't be a quick return to normalcy. But it's also fair to say — if you believe that New York represents the "turning point" in the health crisis, rather than the canary in the coal mine — that the bottom is in for the health crisis. New York has now had three consecutive days of declining intubations. Again, something (treatment) seems to be working.
So we have one month of economic "shutdown" (so far). And three months worth of fiscal and monetary stimulus to plug the gap. The "time" variable is looking favorable. Moreover, the phrase "economic shutdown" assumes a complete stoppage in the economy. That's not the case. Many areas of the economy are still operating. Even the capacity utilization for the industrial sector is still running at 73% capacity through March – only seven percentage points below the long-run average, and still far healthier than the depths of the financial crisis period.