Economic Data Roundup (11/04/2020)

11/4/20 8:00 AM

Incoming reports on business activity in America remain encouraging. For example, four of the Federal Reserve’s five main regional manufacturing gauges improved in October, and even relative recovery laggards such as the northeast continue to signal a V-shaped rebound in factory output. Broader national measures from IHS Markit and the Institute for Supply Management (ISM) updated this week similarly suggest that there has been a rapid recovery in activity in recent months. However, it is important to remember that these particular metrics are diffusion indexes, meaning that all they can really tell us is how the proportion of surveyed managers who believe business conditions are getting better compares to the proportion that feels conditions are deteriorating. Seeing most gauges back above the expansion-contraction line therefore does not necessarily mean that overall activity has truly returned to pre-pandemic levels but simply that conditions in general are no longer getting worse.


Regardless, this is still a very important step on the road to a full recovery, and under the hood many subcomponents of these indexes remain quite encouraging even as uncertainty has risen around the election and additional waves of the coronavirus. In the latest ISM report, for instance, measures of new orders growth, production, employment, order backlogs, and exports all strengthened in October. Markit’s chief economist added that “producers of investment goods such as business equipment and machinery are leading the upturn in a welcome sign of rising business confidence and corporate investment,” while at the same time cautioning that “going forward, much will naturally depend on the extent to which the economy can remain open and functioning in the face of rising virus case number.” It is also important to note that unlike typical recessions in the past, the current economic downturn has been driven by weakness in the service sector because this arena's higher share of close physical proximity businesses leaves it more sensitive to pandemic-related restrictions. On the bright side just-released gauges of non-manufacturing activity confirm a similarly rapid recovery following the lifting of the destructive lockdowns earlier this year. Further, surveyed managers are increasingly displaying outright optimism about their near-term business and economic outlook, as opposed to the much more cautious sentiment expressed this summer. Highlighted comment examples can be found below:

Goods-Producing Firms

  • "Business continues to be robust. Sales are greater than expectations, and cost pressures are modest. … We expect a strong finish to 2020 and a solid start in 2021." (Chemical Products)
  • "Increased production due to stores stocking up for the second wave of COVID-19." (Food, Beverage & Tobacco Products)
  • "Continue to see increases in customer demand. We still are not back to pre-COVID-19 levels but are continually improving." (Fabricated Metal Products)
  • "Business is almost back to normal levels; however, customers are still cautious with capital spending." (Machinery)
  • "Business levels have just about returned to pre-COVID-19 levels. Our company is remaining conservative with fixed-cost spending, knowing the uncertainties that lie ahead with COVID-19 and its potential impact globally." (Miscellaneous Manufacturing)
  • "October order books are the strongest we have seen in the past six months." (Paper Products)

Service-Providing Firms

  • "Business has improved, but greatly reliant on COVID-19-related restrictions. Supplier's inventories and lead times are longer and spotty with outages due to keeping lead times lean as a cash flow measure, but putting consistent supply at risk." (Accommodation & Food Services)
  • "Interesting business cycle: Labor is still in short supply, and work orders are picking up." (Construction)
  • "Challenges to maintain safety and prevent the spread of COVID-19 has meant changes in the way activities are carried out. Purchases of personal protective equipment [PPE] and facilities equipment along with modifications to buildings and walkways has led to higher spending in some areas." (Educational Services)
  • "Given COVID-19, the adjustments we have made across the company has allowed us to reach previous employment levels, and those furloughed are back to work. Everyone is careful to wear the required PPE and keep distancing. We have added additional cleaning staff between shifts to upgrade sanitation." (Finance & Insurance)



Sources: Econoday, IHS Markit, ISM, FRBSL

Post author: Charles Couch