The bad news is, US factory output dove the most since 1946 in March, data out Wednesday showed.
The good news is… well, I’ll need to get back to you on that, because right now, there really isn’t any.
The plunge – a harrowing 6.3% drop – was worse than expected, and by a fairly wide margin. Consensus was looking for a decline of 4.1%. The most pessimistic estimate called for a plunge of -8%, so I suppose it could have been worse. It could always be worse.
As you can imagine, this was an across-the-board wipeout. You can just a pick a category and marvel at the malaise, although some sectors suffered considerably more than others.
Motor vehicle production, for example, dropped 28%. That’s the biggest decline since January of 2009.
Capacity utilization fell to 72.7%, the lowest in a decade.
You get the idea. US factory activity is decelerating rapidly, and you should consider this in conjunction with a services sector that effectively disappeared overnight in March.
“[This is] much weaker than implied by the ISM manufacturing survey”, ING wrote, in an e-mailed note. “It underlines the problems for the sector caused by the combination of Asian supply constraints, weaker demand and some social distancing in the workplace”, the bank went on to say, before warning that “it also offers early signs of the pain to come for the energy sector in the wake of the price collapse and demand destruction as travel is steeply curtailed”.
If the Empire Fed gauge (which collapsed in April) is any indication, these numbers could get considerably worse in the months ahead.
Of course, the market is supposed to “look through” all of this. After all, it’s an “engineered” shutdown and does not reflect the “fundamentals” of the underlying economy, which “remain strong”.
I don’t necessarily disagree with that argument, as easy as it is to lampoon right now.
One does have to wonder, though, what is even meant by “fundamentals” in a scenario where economic activity has effectively ceased.
There’s something profoundly strange about suggesting that economic activity itself is somehow not a reflection of the “fundamentals”, a concept which, as any investor knows, can be wholly nebulous.
“Fundamentally” pristine logic, as usual, Walt.
The Sound Fundamentals referred to belong to a system that is designed to do exactly what it was doing for the designers of that system…. Now all of a sudden the fly in the ointment is a flaw that was not calculated into the design….Corona Virus does not really respond to a monetary solutions… Maybe we should be talking about unbalanced , flawed Fundamentals…??
Not quite the same as converting potential into kinetic energy, which is governed by laws of nature.
Turning the economy back on could get really screwed up.
Fiscal support …as much as it takes…is required to float individuals and small business (fundamentals) across the sink-hole that opened up in the road. It has only just started to drip into the economy on Monday with a measly $10B. The market is not the economy, but there is an elastic connection between them which allows the market to go for a joy-ride while the economy catches up and they meet up again. However, if the economy does not catch up fast enough, the market falls back to meet the hobbled economy, and since the politicians erroneously think that the US doesn’t have enough money to float the economy, the market will be forced to abandon its joy-ride and join the economy that will still be deep in the sink-hole.
Great analogy ai.
If it walks like a scene from Looney Tunes and it talks like a scene from Looney Tunes, it probably IS a bad rendition of Loony Tunes. Be Beep.
Our car is perfectly functional with a full tank of gas so everything is fine but… it is completely full of killer bees so we can’t use it but… it is in perfect working order so we expect full market value on trade in, you can pick it up from our driveway. Sounds good to me.