New Fed Data Points to Economic Pain and Worrisome Ebbing in Inflation
31 March 2020 - 4:51AM
Dow Jones News
By Michael S. Derby
The first wave of data capturing the front end of the new
coronavirus crisis is dribbling in, and regional Federal Reserve
Banks are tallying up the ugly picture.
On Monday, the New York Fed launched a "Weekly Economic Index"
aimed at capturing where the economy is in near real time, and
extrapolated historical levels based on past data. In its first
outing, the index showed "developments in the past week saw the
index fall to a level unseen since 2008," during the heat of the
financial crisis.
The report's authors note that their index seeks to show what a
given quarter's activity would look like if it persisted for a
year. The index, which had been indicating economic growth on
either side of 3% since about 2017, plunged in nearly a straight
line and now reflects a contraction of about 3%.
A separate report from the San Francisco Fed warned uncertainty
generated by the crisis could wash away already modest inflation
impulses in the economy. This uncertainty may "lead to a persistent
increase in the unemployment rate of roughly 1 percentage point,
while simultaneously reducing the inflation rate by as much as 2
percentage points and bringing the interest rate close to its zero
lower bound."
The San Francisco Fed report warns its current findings "will
surely understate the overall impact of the current pandemic"
because new negative effects are still playing out, leading it to
say "the pandemic is likely to weigh on the economy persistently,
depressing economic activity and inflation well beyond the near
term."
The New York Fed index's authors said their new weekly index is
based on a mix of job, consumer-confidence, steel-production,
energy-use and electric-utility data.
"In normal times, familiar macroeconomic aggregates provide
accurate descriptions of economic conditions with a modest delay,"
the authors wrote. "But, in a tumultuous setting, when conditions
evolve rapidly from day to day and week to week, less familiar
sources of data can provide an informative signal of the state of
the economy."
There are plenty other public and privately produced real-time
growth trackers. The New York and Atlanta Feds make them, for
example, but their construction has yet to lead them to capture how
the coronavirus crisis and its virtual shutdown of the swaths of
the U.S. and global economy will hit growth.
The Atlanta Fed's closely watched GDPNow growth tracker is
pointing to a 2.7% gross-domestic-product gain in the first
quarter, but the bank says on its website to disregard that
estimate due to the coronavirus crisis. Meanwhile, IHS Markit's
first-quarter estimate indicates a 2.1% decline in first-quarter
GDP.
Most private-sector forecasters see a massive hit to growth.
While the Fed has no official forecasts and bypassed creating one
at the its most recent Federal Open Market Committee meeting citing
uncertainty and rapidly moving events, St. Louis Fed leader James
Bullard has suggested that half of production might need to be
shelved during the second quarter.
The Dallas Fed also reported ominous factory data for March for
manufacturers in its district.
The bank asked factory operators a series of special questions
about the crisis. Some 83.5% said the coronavirus situation had
increased uncertainty, 61.0% said it was affecting supply chains,
76.7% said it was hurting production and sales and 34.3% said it
was negatively influencing their worker head counts.
Firms also reported a modest deflationary bias to prices from
the trouble, although most see no change so far. Four hundred firms
were surveyed by the Dallas Fed in mid-March.
(END) Dow Jones Newswires
March 30, 2020 13:36 ET (17:36 GMT)
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