Rate of Contraction Exceeds the Global Financial Crisis

Mish

The US is suffering  the fastest deterioration in operating conditions for over 11 years.

Markit reports Output Contracts at Fastest Pace in Survey History amid COVID19 pandemic .

Key Findings

  • Flash U.S. Composite Output Index at 27.4 (40.9 in March). New series low.
  • Flash U.S. Services Business Activity Index at 27.0 (39.8 in March). New series low.
  • Flash U.S. Manufacturing PMI at 36.9 (48.5 in March). 133-month low. 
  • Flash U.S. Manufacturing Output Index at 29.4 (46.5 in March). New series low. 

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 27.4 in April, down from 40.9 in March, to signal the fastest reduction in private sector output since the series began in late-2009.

Services companies registered the steepest rate of decline in the survey’s history, while manufacturers recorded the sharpest fall in sales since the depths of the financial crisis in early-2009. 

The cancellation and postponement of orders led firms to reduce their workforce numbers at a rate far exceeding anything seen previously over the survey history at the start of the second quarter. 

Chris Williamson, Chief Business Economist Comments

  1.  “The COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history during April. The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis, with jobs also being slashed at a rate far exceeding anything previously recorded by the survey.” 
  2. “The large swathe of non-essential business that has been shut down temporarily amid efforts to contain the virus means the blow has been most heavily felt in the service sector, and especially for consumer facing companies in the recreation and travel industries. Those companies still actively trading meanwhile reported the steepest drop in demand seen since data were first available, and are also struggling against twin headwinds of staff shortages and supply chain delays.”
  3. The scale of the fall in the PMI adds to signs that the second quarter will see an historically dramatic contraction of the economy, and will add to worries about the ultimate cost of the fight against the pandemic.”

Still Actively Trading

Comment #2 is interesting: "Those companies still actively trading..." implies Markit was unable to reach some companies.

What's Next?

On March 23, I wrote Nothing is Working Now: What's Next for America?

I noted 20 "What's Next?" things.

Covid-19 Recession Will Be Deeper Than the Great Financial Crisis

On April 1, I commented, the Covid-19 Recession Will Be Deeper Than the Great Financial Crisis. Do not expect a V-shaped recovery.

Forever Changed

  • More teleconferencing and fewer corporate lunches
  • Less air travel, hotels, and car rentals at the personal and business level
  • More work at home
  • More do-it-yourself haircuts, nails, lawns, etc.
  • Fewer car purchases
  • Fewer home purchases
  • Accelerated online shopping and more mall closures

The knock on impacts of all of those means more bankruptcies and less employment..

The Markit report and comments from Chris Williamson lends support for my views.

Note: In case you missed the announcement, I am now on TheStreet.com/Mishtalk

The redirect is automatic and there will be no lost articles or lost comments to articles.  My "room" on TheStreet will remain free of charge.

Mish

Comments (64)
No. 1-22
Mish
Mish

Editor

On The Street

Mish
Mish

Editor

It appears you have to sign on again

Ted R
Ted R

All evidence points to the dreaded and feared D word. Look's like a global depression is here or almost here. Facts don't lie.

CaliforniaStan
CaliforniaStan

So that explains why the stock market is up again today!

tokidoki
tokidoki

Dow 1 million then. Man it's getting more and more bullish!!!

Maximus_Minimus
Maximus_Minimus

In stages, I expect a few nasty things:

  1. Lingering pandemic, no cure-it-all medicine.
  2. Economic depression, regional food supply problems.
  3. Banking crises, housing bust, runs on banks.
  4. Pension crises.

Insert any helicopter money programs, international conflict and riots in between.
The pandemic is catalyst, but the reckless financial house of cards was going to collapse eventually.

Tony Bennett
Tony Bennett

House of Cards (economy)

Anyone knows a decent HoC takes a while to build ... and only a moment of disturbance to ...

ZZR600
ZZR600

The covid crisis will end at some point. Longer term though, just as damaging may be a significant breakdown in relations between China and the rest of the world. US China relations were already had prior to this, anyone care to comment how this might play out longer term?

Anda
Anda

Own reply box and easy login, page seems smoother also.

In EU they are looking at -30% GDP yearly at this rate

Lipscomb407
Lipscomb407

Next week the other FAANG stocks report. Google, Facebook, and Apple are going to disappoint the street. Next week is when I expect reality to come back to the markets as these companies are not completely exempt from macroeconomic forces. With 20% of S&P500 market cap among them it won't take much to move the entire market significantly lower.

tokidoki
tokidoki

Netflix's junk bond offering 10x oversubscribed.

Mish is wrong again. No one's expecting deflation.

jivefive99
jivefive99

As dad once said "Dont be so negative!" Americans invented "Pent-up Demand," and if there is credit still available on their cards, everything will be back to normal no matter how many dead bodies we have to surf over ...

Sechel
Sechel

2008 vs 2020 is very different. 2008 was about insolvency first and foremost. 2020's catalyst was a virus and businesses were shut. the similarity is that companies like airlines spent all their money on buybacks leaving them nothing in the bank and workers/consumers that live pay check to pay check.

DrageRecordings
DrageRecordings

Slightly off topic but i think its potentially really good news. If the Cuomo announced research that herd immunity is at double digits already is true that's very promising news. Also would mean cfr is substantially lower than previously assumed.

However its obvious this is worse than your normal flu, but i'm starting to think it's the ease of transmission which makes this coronavirus create more sickness and death since more people get it, more easily. But it also means that there may be a solution where restrictions are relaxed but with rules focusing on minimising infection as much as possible.

numike
numike

Largest study to date: Infectious diseases that can be acquired from other humans foster conformity and authoritarian attitudes. https://twitter.com/DegenRolf/status/1251346737517793282

Zardoz
Zardoz

“The COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history"

More like the pinprick that popped the biggest bubble in history. It was coming no matter what.

Sequoia
Sequoia

I feel there are lots of things that will never recover in this environment of social distancing.
Resteraunts, airlines, movie theaters, assembly lines, hair salons, massage therapy, meat processing, sonographers.

I had my hair cut today in the house by my normal stylist against the law. I believe this to be a plandemic and I was nervous and had her wear gloves and a mask. So I do not see a quick return to normal.

As a side note I have read that Jumbo loans are essentially frozen, good times!!

magoomba
magoomba

Even with Trump's limitless generosity this perfect storm will crush everything.
It is wonderful!
UBI is HERE NOW. Yang was right. Trump will help everyone if we let him.
I'll net that drives the far lefties absolutely nuts.

magoomba
magoomba

So far the new site seems to work fine Mish.

Scooot
Scooot

Hooray I have a comment box now,

Herkie
Herkie

And just to make absolutely certain crisis is total and permanent for the future there is this: Coronavirus is a Rorschach test on how best to battle climate change

I found three unique stories at different web pages today that basically say we have to apply the same level of change (or more) to the climate "crisis" as we have to the pandemic, or we will face death and collapse from climate problems.

So, who looks forward to spending the rest of your life in permanent crisis? With all the shaming that goes with not conforming perfectly every moment of the rest of your life? With never being able to get it right, or to fail to go above and beyond in the eyes of others, not to mention the total loss of freedoms.

And the sad part is that with marketing during a major pandemic they will very likely win. Even if people reject the silly far left eco Nazi agenda with time the campaign will wear people down. And even though the climate Gestapo thinks it is doing mankind a favor there is a total and complete diametrically mutually exclusive relationship between commerce and climate. All commerce will be labeled as harmful. And the forces of darkness will only admit that their agenda requires the lowering of the population of the planet to under a billion people after they are at least halfway there. And worse, the goalposts will always be lowered, by the time the human population reaches less than 2 billion they will be touting a population that is as low as is required to prevent extinction of the species.

If they were honest, with themselves and us then perhaps it would be easier to go along with them, but since everything about the "climate crisis" is a lie we cannot expect them to behave in a manner a rational person can agree with.

Jdog1
Jdog1

It appears as if we are now fully involved in a negative feedback loop. Debt default will cause deflation, which will lower asset values, wiping out equity, causing more default. Repeat, repeat, repeat.
The interesting thing is how people at the lower income levels who are now reaping a windfall from unemployment and Cares are also becoming delinquent on debt, and in some cases now refusing to pay rent. Not paying your bills appears to be the new fad.
Issuers of credit are going to have to decide between leaving borrowing standards loose and accepting the default losses or tightening credit and the negative effects on the economy that will cause.
We have not yet even begun to see the impacts from commercial property default or the default of cities, counties, and States.
So far as the stock market, it has definitely now become a lagging economic indicator and not a leading one...


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