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Busy Week Ahead for Global Data

There will be quite a lot of examination this week, when it comes to new information regarding the state of the global economy. At this point, the information looks pretty decent and suggests there has been recovery in several sectors of the economy. Two questions, however, will hang over these assessments: Did they meet expectations and will the renewed threat from the virus halt this progress in its tracks?

A number of countries will release data chronicling the status of their industrial sectors.The U.S. has already seen some good news emerge from the latest Purchasing Managers' Index and the Credit Managers' Index as well as a host of other measures. We reviewed a collection of these on Friday. Of the 12 that Armada reviews for the Chemical Coaters Association International and the Industrial Heating Equipment Association, all but two of them had started to trend back into positive territory. This week there will be more reports arriving from Europe, China and others.

The expectation is there will be substantial recovery as far as eurozone industrial activity is concerned. The Germans and the French will likely lead this recover. Southern tier states are not experiencing the same level of rebound at this point, but they have seen some progress as well. The majority of the region has started to open back up for business, but there has not been the kind of viral outbreak that the U.S. has seen, at least thus far. 

The Chinese are also expecting a good industrial report, but it will be coming as part of its own consumer demand as opposed to its usual motivator. The import and export levels are both still down, but the reopening of the economy has spurred consumer demand within the country. Imports are down as the country reacts to some of the continued trade barriers imposed by the U.S. There has been less demand for the intermediate goods that would ordinarily be part of its export sector. Demand for Chinese goods has been weak as the world contends with the economic slowdown.

The U.K. is one of the few nations that releases monthly GDP numbers, and this issue is expected to show the country has managed to recover a great deal of what was lost in April. The pattern globally has been positive because the majority of nations are recovering from the depths of the lockdown in April. The rebound has been a bit slower than had been expected but there are signs that recovery has started to pick up speed in Asia and Europe and to some degree in the U.S.

Some good news is expected in U.S. data this week. Industrial production will be making a comeback in all three sectors: manufacturing, utilities and mining. The latter sector includes oil and gas, and there has been a recovery in global demand for oil sufficient to drag the per barrel price of oil back into the $40s and even $50s. The consensus view is that oil prices will be in a range from $50 to $60 by the end of the summer. Manufacturing has continued to recover, but there are large segments that have not shown a lot of progress as yet (aerospace at the top of that list). Automotive is making a comeback, and that is good news overall. The utilities finally got its hot summer weather, and the public has been cranking up air conditioning. The second piece of good U.S. news is likely to come from the retail community as it appears that consumers have continued to hit the stores even as it still eschews the service activity that had once dominated spending. In some respects, retailers have been benefiting from the restricted activity as people are investing more and more in their homes and in personal entertainment.

As positive as this data is likely to be, the question will be how long the good news lasts. There are two threats that still loom over the economy at this point, and both are related to the virus. Given that many states are now seeing record numbers of new cases and more importantly new highs in fatalities, there has been renewed calls for imposing another lockdown. That would likely prove more damaging than the original effort. If there is no lockdown, there is always the reaction of the consumer to worry about. Even as more business has opened, the consumer has shown more trepidation, and that will have an impact on those operations that have opened up.

NACM Economist Chris Kuehl, Ph.D.

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Friday, 23 October 2020