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A Bit of Good News

June 5, 2020

In a time of black swan events and economic uncertainty, it can be hard to find the light at the end of the tunnel. Catch our newest TrendsTalk episode with ITR Economist and Speaker Connor Lokar to hear the latest good news.


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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Connor Lokar:
Hello everyone. I'm Connor Lokar, checking in for our latest TrendsTalk here at ITR Economics. And today we're rounding up the good news, because quite frankly, I think we all need it right now. For the last 12 weeks or so, give or take, we've been the dealers of almost exclusively bad news here at ITR, as far as the US and global economies are concerned. Contrary to what some of you may believe, being that kind of grim reaper is not a role that we enjoy playing. Turning on the news outside of ITR in recent weeks has, I'm sure, yielded little else than grim COVID-19 case and death totals, disturbing unemployment reports and images, civil unrest and everything else that you can expect in a general election year. But believe it or not, there are some slivers of good news peeking out if you know where to look, and here at ITR, we do. So, let's take a look at what we've got.

First off, the retail environment has stabilized in its weekly rates of decline and transition to recovery. A new tool that we found as a result of COVID-19 and the speed of the economic collapse and our search for more dynamic metrics, is the Johnson Redbook weekly retail indices, which gives us a little more dynamic look at the retail space here in the United States. And we have derived weekly rates of change from these data points to cyclically measure the retail spending, and the rates of change are telling a story of recovery. That's great news. Both total and more severely effected department store retail sales have arrested their free falls respectively, with the rates of change bottoming out on a weekly basis from early to mid-May.

Now, to be fair, what we're seeing is an improvement in the week-over-week decline in retail sales relative to last year. That's another way of saying that we're spending less than we were last year in recent weeks. That's a problem. That is a problem for consumer-spending-driven economy like ours. But the rate at which our retail spending is declining, is actually improving. We're seeing things recovering. I would think of it as the bleeding slowing down, not necessarily stopping. And so it appears that that band-aid made up of combined coordinated policy efforts from the fed, from the CARES Act, the PPP, and the gradual reopening of the US, especially, is making a difference, and a positive one. It's going to be a long slog till we get back to year-over-year growth, week-over-week growth, but you have to crawl before you can walk. And it appears that the collective consumer is starting to do just that and crawl out of that hole that was the last couple of months.

In that vein, let's keep going. What else do we have as we look at US intermodal rail traffic? As we look at that measured in weekly-originated units, it is in a general ascending trend. This is a great metric, it represents the movement of physical goods and raw materials around the country, and it's a very intrinsic look at the US economy. And it too, is rising off a mid-April low, and is on an ascending trajectory that looks sustainable. Again, we're a little behind where we were in May 2019. Perhaps not as much as you'd think, actually. It's quite close and climbing, and it looks like that's poised to continue.

And hot off the press, actually, yesterday, we got the May 2020 US Purchasing Managers' Index reading, and that 1/12 rate-of-change rose. Came off of an April low and rose in May, on a 1/12 or a month-over-month rate-of-change basis. Now, this is a leading indicator, this is unlikely to translate to cyclical improvement in US industrial production until early next year, which is consistent with our forecast. But this trend of April low would generally be on time, so to speak, as it relates to our forecast and thus, making it good news.

And again, rise, it's tentative, I can't quite hang my hat on it yet. We'll like to see a couple more months of rise off this, but you got to crawl before you can walk, walk before you run, and it appears we are doing just that. As we look at perhaps an image of that, we see oil futures pricing has resumed a rising trend. While they are still depressed year-over-year, they bounced back from a horrific April to settle at levels that are more consistent with normal economics in regards to, again, weak demand and ongoing excess inventories, but again, rising from where we were in April. We can expect the price to rise if demand continues to restrengthen and recover, which is what we're projecting, more so in the second half of this year, and if production cuts remain in place, which is clearly a risk and a little bit bigger if. But the foundation is stabilizing at this point in time.

And also in financial markets, we see the stock market is having itself quite a run, which has personally surprised me a little bit, but I'll take it. Those green numbers in everyone's stock apps or 401k statements, that's just such a welcome reversal from March and great to see.

And on top of all of this, perhaps most importantly, is that we still have ongoing declines in daily COVID-19 case and death trends in the United States and elsewhere across the globe, even as we are reopening here, as we are reopening abroad and sending folks back out into the world, and that is such good news. So economically speaking, health speaking, there is a light at the end of the tunnel. It's gotten a little bit closer and a little bit brighter in the last few weeks, and it does not appear to be a train. Hopefully, this serves as a much needed breath of fresh air for all you listeners. Thanks for checking in, I'll see you next time.


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