May 9, 2020 and it is time for some charts on the Economy

Be mindful, the charts do not present a pretty picture of the state of the economy. We all hope for a speedy return to “normal” life, and with that a fast pick-up in economic activity. We should be prepared for something different should the economy recover more slowly. I am sharing the data below to give us a clearer picture of how challenging the recovery may be, and if it is more challenging, we should all be very careful and prudent with how we are managing our assets and our emotional well-being.

First up is the key to manufacturing and future pace of rehires once the economy begins to move forward. This is troubling as the spread between inventory levels and new orders/shipments are at historical levels. Inventory needs to burn off for factories to bring back the workforce. If we recover with speed and acceleration, then the burn will be fast and employment will rise quickly, but if we are slow to recover economically, then this excess inventory will be a drag on the economy.

Second up is the U.S. average price for New Home sales. Does have me a bit concerned.

Third up is the current state of Unemployment. The chart shows the average number of weeks people are claiming unemployment insurance and the total unemployment as measure by the U-6 metric. Avg weeks is dramatically lower due to the influx of recent claims, while the U-6 rate is at a record high.

Fourth up is the production of Steel in the U.S. We just got back to the peak level from the year 2007, and we have collapsed in 2020, similar to the fall during the Great Recession.

Fifth up is Business Sales vs Business Inventories. Normally, business inventory levels are greater than sales to enable quick shipments to meet unexpected demand and impulse buys. Normally, I would expect this to be above 75%, meaning that sales are running at about +75% of inventories. Rising %s and above 75% tell us we have an expanding economy. Falling %s and a level below 75% tells me we have shelves that are too full, and a likely slowdown in the economy is coming. The data presented does not yet reflect April data. Regardless, we can see that even before the virus effect, inventories were already building beyond what I would consider normal. April data will likely show a continued deterioration, which would require a V shaped recovery to work off the excesses. That may be a challenge if we recover slowly from the economic contraction brought exacerbated by the virus.

Sixth up is the cost of borrowing. Right now the credit markets are in a very difficult place. Strong companies should be fine, but the weaker companies are finding the cost of money to be too expensive or not available at all. It is why we are starting to see bankruptcies increase, as the lifelines from banks gets pulled.