Even in the case that real economic activity is approaching its nadir, the data is likely to get worse.
On Thursday, some economic data reported an unprecedented decline in activity. In both the United States manufacturing and services sectors that we have heard the relatively good news.
On Thursday, IHS Markit’s flash reading on business for April was published. It hit a record low. It composites output reading falling to 27.4, the lowest on record.
The report said that Private sector firms in the United States signaled an unprecedented decline in business activity in April. Moreover, service and manufacturing sector companies are registering marked contractions of output amid the outbreak of COVID-19 (coronavirus disease 2019). In March, after an initial drop in this index to 40.9, April’s data confirmed that the bottom is indeed dropping out of the United States’ activity of the economy.
Chris Williamson is a chief business economist at IHS Markit. He said that the COVID-19 outbreak dealt a blow to the United States economy during April of a ferocity not previously seen in recent history. The deterioration of the flash PMI numbers is indicating a rate of contractions exceeding that seen even at the height of the global financial crisis. Moreover, jobs slashed at a scale that far exceeds anything previously recorded by the survey.
Nevertheless, the largest-ever drop in activity seen from IHS’ report is pointing towards a falloff in gross domestic product growth during the second quarter. It is not quite as grim as some economists forecast.
Economic Situation
Michael Pearce is a senior economist at Capital Economics. On Thursday, he said in an email that the IHS Markit’s report is suggesting that the economy will contract at an annualized rate of 12% during the second quarter. However, the team and Pearce at Capital Economics are expecting to see a 40% annualized decline.
Pearce writes that they remain skeptical. Thus, they are skeptical about the surveys providing an accurate gauge of how bad the decline in GDP will be. This is because of the problems associated with such high non-response rates to surveys during a time when many businesses are not working.
The April reading is a record low. Nevertheless, this is relatively good news.
Qualitative surveys are painful to make because many offices are not working currently, so there is no one to respond to these questionnaires.
Moreover, quantitative data on the health of the United States economy was painting unambiguously horrific pictures.
On Thursday, the report revealed that another 4.42 million Americans filed first-time claims for unemployment insurance. More than 26 million people have filed initial complaints over the last five weeks. The four-week average of claims now is nine times higher than the peak of the financial crisis.
Greg Daco is from Oxford Economics. He said that the data for claims is consistent with their forecast. Thus, the outlook for job losses is about 24 million in April and the spike in unemployment to a rate of 14%.
Let’s see what happens in the future. Let’s hope that the United States will cope with the challenge.
