There are two recent reports on the U.S. economy worth mentioning this morning. First, the latest data from the U.S. Energy Information Administration showed that the average cost for Regular gasoline in America fell by eight cents over the past week to $1.92 per gallon. That was the 6th weekly decline in a row and the lowest reading in four years. Regionally, the cheapest gas in the country as of this writing can be found in Wisconsin, where a gallon of Regular costs just $1.41 on average, while residents of California as usual have to pay the most in the continental U.S. for Regular ($2.95/gallon). A major factor behind the decline at the pump has been a sharp drop in the price of crude oil caused by a combination of coronavirus-related demand destruction, and a price war between Saudi Arabia and Russia that has flooded the world with even more supply. In fact, the cost for a barrel of West Texas Intermediate crude in Q1 experienced its biggest quarterly decline ever and briefly dipped below the psychologically important $20-a-barrel level not seen since 2002. In April, though, the per-barrel cost has already started to rebound, including the largest 2-day rally on record for WTI due in part to expectations for coordinated production cuts across the globe. However, even after this latest bounce the price of crude is still well below the recent highs, and gasoline in turn seems likely to remain extremely affordable for the foreseeable future. Cheap pump prices historically have been treated like receiving a paycheck raise, but since millions of Americans are staying off the roads now that the U.S. economy has been effectively shut down to stem the spread of COVID-19, the resulting bump in consumer spending, if any, should be limited.
Elsewhere, small business owner confidence collapsed in March, according to a new report from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index fell from 104.5 to 96.4 last month, the largest drop on record and the lowest reading since October 2016. Nine of the ten main components that make up the sentiment gauge deteriorated in March, with inventories being the only area to see improvement. This is not surprising because the lockdown protocols intended to stop the spread of the coronavirus have not only crushed customer demand but also made deliveries harder to fulfill. Small business labor conditions were especially weak in March, with surveyed owners reportedly slashing their plans to bring on more employees and boost worker compensation in the months ahead. This is an expected side effect of the COVID-19 containment efforts and agrees with the labor market data we looked at on the blog last week. Some smaller firms will be able to quickly bounce back after the lockdowns are lifted, while others may not fully recover for quite some time. For example, if you own a hair salon, your customers could indeed come back once your business is allowed to reopen, but anyone who was going to get their hair cut during the lockdown does not start having their hair cut twice as often to make up for it after the crisis fades. Moreover, 21 percent of small business owners in a separate survey said that their firm would likely fail in less than a month without any cash flow, according to the Wall Street Journal, and another 34 percent doubted that they could survive more than one to three months. New lending facilities created by the SBA and the Federal Reserve aim to help small businesses weather such challenges and provide financial support to curtail separations. However, the NFIB report’s authors cautioned that “Small businesses are finding it difficult to submit applications for the new Paycheck Protection Program loan or receive timely financing through the SBA’s Economic Disaster Loan program. The severity and duration of the COVID-19 outbreak and the mobility regulations imposed will determine owners’ ability to remain operational going forward.”
Sources: Econoday, U.S. EIA, GasBuddy, WSJ, NFIB, FRBSL