Finding Reality in a Yo-Yo Economy

It seems as if US imports are performing like a yo-yo, up one month and down the next with no apparent cause that can realistically point to either a crashing or booming economy. Meanwhile, the stock market appears to be taking its cue from COVID-19 data rather than economic indicators.

Trying to fathom employment and unemployment statistics is a major feat. While the number of new jobs created can show an increase, the number of people registered as unemployed can increase at the same time. What is clear as the lockdowns have come to an end in many states is that most of those returning to work have gone into the retail and leisure sectors, not manufacturing. In June, employment in leisure and hospitality increased by 2.1 million over May, accounting for about two-fifths of the gain in total nonfarm employment. Restaurants and bars were up by 1.5 million jobs and retail was up 740,000. Yes, we’re starting to go out to eat and buy clothing again, but how sustainable is that if the infection and death rates go up?

Retail sales in the US jumped 17.7 percent in May, recovering from a record 14.7 percent fall in April but were 6.1 percent below May 2019. The Federal Reserve’s Industrial Production Index was at 92.6 in May. That was an improvement from 91.3 in April but barely above the 87.4 in the trough of the Great Recession in 2009 and far below 109.2 a year earlier in May 2019. Nonetheless, the Institute for Supply Managements’ New Orders Index showed a record rise.

The danger is that the rising number of virus infections is leading to renewed restrictions which may cause demand to weaken again. In the meantime, many large companies are reviewing their mode of operations and are shedding workers in large numbers, suggesting that the worst may be yet to come.

The growing war of words with China is not helpful. This is not the time to continue a trade war when global trade is forecast to drop by anywhere up to 20 percent depending on the forecaster. The global economic decline appears to be getting worse, with the International Monetary Fund now predicting that the global economy will fall 4.9 percent in 2020 from 2019, compared with its April forecast of a 3 percent reduction. The IMF expects US gross domestic product to shrink even more at 8 percent. Uncertainty reigns.