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Riding the Roller Coaster

June 12, 2020

Roller coasters are fun at amusement parks, but it’s a hard way to run a business. Catch our newest TrendsTalk episode with ITR President and Speaker Alan Beaulieu to learn how to find some steady ground in this uncertain economy.



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Transcript by Rev

Hi, this is Alan Beaulieu, president of ITR Economics. I want to talk to you about the roller coaster, It is absolutely a fun ride when they go to amusement parks and the bigger, the better for a lot of folks, twist and turn, go upside down, go backwards. A lot of people really love that, but it's a hard way to run a business and that's what's going on right now. We're in a bit of a roller coaster ride. I want to talk to you about that for just a few minutes here and zone in some things that I think you can get grounded on, instead of being tossed around on.

You may have noticed that the unemployment number on Friday was fantastic. It showed the employment went up, the unemployment rate went down and the number of people unemployed obviously went down and there was euphoria in the media. And then over the weekend, we learned that, sorry, that was a mistake. And it was not nefarious. It was just simply a mistake. It was not the media's fault. It was Census Bureau. Those things happen, but it certainly added to that roller coaster, because that's normally just not what you'd expect from the government's reporting system.

So it happened. And then, today I was looking at the Redbook weekly index for retail sales, which had been going up and down, but mostly up. It never moves in a straight line. And the latest week shows that the department store numbers plummeted, just fell right back down again. And it was like, what's going on here? Well, it's one of the reasons why we do not really like a lot of weekly data here at ITR, because there's so much variation in the weekly data. There's so much noise and you can get carried away by three weeks worth of a trend just to have it wiped out in the fourth, or you could be carried away by three days of information and have it wiped out on the fourth.

It's just amazing. It's difficult, which we hardly use monthly data here at ITR Economics to forecast, because you need to smooth out and go to a three month moving total. You need to work through a rate of change methodology that is unique to ITR and using our unique forecasting methods, using that rate of change. We can come up with reliable forecast. That's difficult to come by these days, because things are changing so fast. Nevertheless, I think we can look at some things that will give you more of a grounding and less of a roller coaster. Now keep in mind what I just said.

We prefer three months moving averages and such, but we don't have that option right now. So let's start with COVID. The news seems to vary greatly. I can read articles where, just today really encouraging where New Zealand hasn't had a new case in weeks and it's good news. And they have no deaths and even longer, it's been lots of fun to read that. And then you read where WHO says that cases are rising globally, and you begin to wonder what's going on. So we go back to the data and the data that I'm talking about is from the European CDC.

The European CDC is a good source of data. It's been our consistent source through this. And when I look at the number of deaths from COVID, worldwide it has stopped declining and gone flat. Now, I don't know whether that's part of the roller coaster or not, but I do know that it is not what most people would like to see. However, when I look at the United States, we do see that as it is continuing to decline, in particular, when I look at the United States, what we see is that on a daily basis, we had our peak back around the middle of April.

And since then, every subsequent peak has been below that peak it's on a peak to peak basis. It's a clear decline. So even though it was daily basis, through time, we seem to be seeing a decline in the number of deaths in the United States. And the troughs are declining too and that's very important. When the troughs are no longer declining, you wonder if you're forming some sort of bottom, but yesterday's numbers show that that trough was below the previous trough, which was even, or slightly above the previous trough. But overall, we still were on a very good trend.

Now, the reason I'm bringing that up is because we're reopening, and as we're reopening, there's lots of fear. And I understand the fear, that as people go out to restaurants more, go shopping more, come into contact more and go to protests more, that we could see an increase in the number of cases of COVID around the world and in the United States, I do get that. The deaths are easier to track and even that's imperfect data, but so far so good. When I look at the number of confirmed cases in the United States on a three day rolling average, to eliminate some of that noise, I did ask for a three day rolling average on that.

Even with the reopening, the number of cases is flat to mildly negative, more flat, but certainly mildly negative. So we're not seeing a spike in the number of cases in the last few days or in the last week, two weeks, despite everything that's going on. No, I'm not advocating for stadiums to open up. I'm not advocating for political rallies. I'm not advocating for any of that. That's not my job. My job is to just talk to you about what's going on and what's going on so far is that we are flat in terms of new cases.

Now, in contrary to that, the United Kingdom clearly is in decline, so is Germany, and so is Italy, where we're holding flat. South Korea is on the ascent, showing a second wave. As they opened up a second wave ensued there. Now the second wave is nothing like the first wave, it's not rivaling that peak. The slope of the trend is much less this time around. So they're dealing with it. They will be dealing with, it may even be peaking as we speak from the looks of things. Interesting to me though, is that while we're afraid of a second wave and I understand why, there's no sign of it yet.

So we're afraid of what might be, even though we don't know if it will be. Here's my advice, let's look at what really is going on and make our plans according to that and not based upon what might be, because what might be may never happen. The Purchasing Managers Index, established a tentative 112 rate of change low in April as from the ISM, very good folks. Now that 112 rate of change, one month of rise is hardly statistically viable, but we did our due diligence and it looks like it will hold.

So it's a data point. It's a month. It kind of goes against everything that I like in terms of stability, in terms of confidence, but as we went through and ran some numbers and even an average PMI change, we're going to see some increase in the rate of change. When I looked at automobile sales for May, very strong, very, very strong, and even an average June decline, post great recession, June decline. We're still going to see more rate of change rise in automobile retail sales.

When I look at our ITR financial leading indicator, it's going up, and as we look at the normal things that we look at and see what they're doing and apply some due diligence to them, we see that the sun is coming out. So I hope you're making plans for that sunshine. Now, going back to the second wave, if that's your concern, all I would ask you to do is track the numbers with us, make sure that you're dealing with it and you'll be able to see it beginning and you'll be able to respond. You may want that playbook on the shelf so that if there's a second wave, you whip it off the shelf and you apply it without having to think about it afresh, but don't make it your playbook, unless it's needed.

If you're of a mindset, while there could be a terrible winter flu that will combine with the second wave and cause state governments to shut down, that's a worst case scenario. Why play to that? Maybe it'll be a mild flu season. In this country, we ignore the flu season, it would be rare for us to pay any attention to what's going on with the number of deaths and flu season. Let's assume it's a mild one and that it's a mild second wave in the United States. Why not prepare for that one? Because if you don't prepare for that one, you're going to miss out on the increased levels of economic activity in the fourth quarter of this year for most industries.

And you're going to miss out on the increased general economic pickup in activity in 2021. It's a roller coaster ride, but let's be grounded in the numbers that we can look at. And lastly, the stock market signaling some really good hopes for full recovery, the S&P 500 before too long is signaling that investors are looking forward to a future that is not apocalyptic. Let's get off the roller coaster. Let's walk underground, let's plan for a good future. Thank you very much for joining me today. I appreciate it.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.