The mid-month consumption, production and price reports for April released next week will be extremely weak, and as a result will likely be shrugged off by markets that are already numb from all the bad news.
Instead, attention should be focused on next Friday’s release of the May Empire State manufacturing reading and the Michigan Sentiment index to see if there are any signs of improvement after two months of social distancing. These rules are slowly being reversed in some states.
The April data released to this point have been overwhelmingly weak, including Friday’s 20.5 million decline in nonfarm payrolls and a jump in the unemployment rate to 14.7%. There is no reason to believe that the other April data yet to come will tell a different story.
The BLS’s Consumer Price Index will be released on Tuesday and is expected to reflect the sharp energy price declines seen throughout the month. Food prices could see another uptick due to shortages, but the initial rush of grocery shoppers in the first few weeks of the crisis did slow down at the end of April and into May. Core prices should also be down for April on severely reduced demand.
Later Tuesday, budget watchers will get a similar feeling to when the check comes due at the end of an expensive meal – the Treasury will release its budget statement for April.
If this past week’s quarterly refunding details – and common sense – are any guide, the Treasury will post an enormous budget gap, an extremely rare occasion for the April tax month. This year, of course, the tax filing date was moved to July, while outlays surged on the immense stimulus plans passed in late-March.
The release of producer price data on Wednesday should be in line with the CPI report, as severely reduced demand for oil, particularly gasoline, cut sharply into wholesale energy prices. Food prices should see a similar uptick at the producer level, while core prices remain tame.
The release of import and export prices on Thursday will only continue the absent inflation message, so all eyes will be on the weekly initial filings data released at the same time.
The week-on-week increase in initial claims has slowed over the last month, a sign that backlogs are finally being wound down. Or that at least they are approaching critical mass to some extent. Additional layoffs will keep the level of new filings relatively high, fueling continuing claims until hiring resumes.
April retail sales, released on Friday, will not be a happy way to end the week. After a plunge of 8.7% in March, one might think that initial drop was the worst of it. However, weekly retail sales reports from Redbook and the monthly vehicle sales data indicate that the March decline was only a start.
Sales at grocery stores were likely the only real positive in the April data. Outside of that essential need, sales should be down nearly across the board.
On the upside, some retail categories may see smaller percentage declines than in March, and it is possible that food services could eke out a small gain as consumers became more comfortable with carry-out and delivery over the month. Even the slightest improvements in May, when some states are planning to partially reopen, will be cause for celebration.
The New York region was the hardest hit by COVID-19, and the manufacturing data in that region confirmed that fact with negative readings in both March and April. The release of the May data will show further contraction, but an increase to a smaller negative reading would be a sign of hope.
Industrial production is expected to decline further in April. Manufacturing production was stalled by continued parts shortages and lack of demand, while extremely low oil prices depressed mining. The one upside could be an increase in utilities production as electricity demand was lifted by stay at home orders.
The Michigan Sentiment index is likely to slip again in the preliminary estimate for May after falling to 72.7 in April. While there is no doubt that consumers remain concerned about the current situation, a bounce back in the reading for future expectations, fueled by some states easing stay-at-home orders, would be a sign that there is an end to the crisis in sight.
Friday’s March JOLTS report will provide additional details on conditions at the start of the shutdowns, but won’t generate a lot of attention after the historic drop in the April employment report. Look for the openings and hiring levels to plunge and layoffs to surge.
Finally, March business inventories are on track to fall by 0.2%, with only the retail inventories number subject to revision at this point. Business sales are on track to plunge by 5.5% pending the retail sales revision for the month.