The U.S. is flying blind when it comes to the economy: recent indicators have been rendered useless by the COVID-19 epidemic and its potential impact on businesses and consumers.
Normally investors would be gearing up for the U.S. jobs report for February due on Friday, but these are not normal times.
The spread of the coronavirus around the world is starting to take a big toll on the global economy, but the damage will only start to show up in economic data in the next month or so. That means all the current temperature readings on the U.S. economy will either fall into the “before-coronovirus” or the “after-coronavirus” category.
The February employment report, the most important of U.S. economic indicators, falls into the first group. The U.S. didn’t start to feel the effects of the virus until the last week of February, when the illness spread around the world and stocks suffered their worst one-week loss since the 2007-2009 Great Recession.
Economists predict a healthy increase of around 170,000 new jobs in February, keeping the unemployment rate near a 50-year low. That would draw some cheers from Wall Street if investors weren’t so riveted by the fast-moving coronavirus story.
“It’s like it’s all old news right now,” said chief economist Richard Moody of Regions Financial. “It will take several weeks before most of the damage shows up in the hard data.”
Investors could get some hints sooner than that though, and possibly as early as this week. A pair of monthly surveys of corporate executives might give an idea of how they are reacting to the virus. The Institute for Supply Management rounds up comments from top business leaders in manufacturing and the service side of the economy.
Many companies have already warned that supply lines are becoming strained and sales might take a hit because of plant closings in China and other efforts to limit the spread of the virus. Already struggling manufacturers that rely on global supply chains are likely to suffer the most.
“Modern manufacturers share a weakness: If a production line stops, carefully choreographed supply chains will choke,” economists at Northern Trust said in a new report. “Every country and company with exposure to China, whether on the supply or demand side, is feeling the slowdown.”
Other early victims include firms engaged in tourism, travel and transportation.
Airlines, for example, are restricting flights to certain countries while technology leaders such as Apple
are experiencing trouble procuring supplies from Asian-based parts producers. These are just some of the ripple effects washing up upon the U.S. shores right now.
Virtually every forecasting firm, meanwhile, is trying to predict where the U.S. and global economies go from here, but it’s a rapidly moving target. Many predict the Federal Reserve will cut interest rates soon to help soften the expected blow.
The best thing that can be said is that the U.S. economy was in pretty good health before the emergence of the coronavirus, giving it more of a cushion to handle the initial blowback. But it might just be small solace.
“You can argue that going into the viral outbreak, the economy was on pretty firm footing,” Moody said. “But how long will it [the crisis] last. How quickly will [the economy] come back?