If you think the March unemployment numbers were bad, April’s are going to be atrocious. But they could shed more light on what the virus recession will look like this year, according to Dr. Bob Dieli, an economist with MacKay & Company.
As of April 23, more than 26 million Americans have filed for unemployment since the coronavirus pandemic began here in mid-March, which could equate to a 15% to 20% unemployment rate, putting it between the Great Recession and Great Depression. The official U.S. unemployment rate for April won’t be out until May. And that’s a number to watch to get a better sense of how the pandemic-driven recession could look, Dieli said during an HDMA webinar on COVID-19’s effect on the commercial vehicle industry.
Shutdowns across the nation appear to be slowing the spread of COVID-19, but politics could disrupt that improvement and get entangled with supply chains, complicating the economy and the trucking industry. Some governors are pushing to reopen the economy sooner than federal guidelines suggest they should, which could hasten the spread of the virus. Another wave of the virus could hurt housing starts, which would put a big dent in trucking.
FTR’s Trucking Conditions Index (TCI) is projecting the pandemic to cause sharp declines in freight volumes, utilization and rates in the second quarter of 2020, which began April 1. FTR expects the TCI to hit its lowest points in April and May — but remain in negative territory into 2021. The TCI had been trending in positive territory for the three months leading to mass shutdowns across the U.S.
“Although trucking conditions might prove to be comparable to the worst of the Great Recession, the trucking industry — like the rest of the economy — has never seen such an abrupt deterioration,” noted Avery Vise, vice president of trucking for FTR. “The need to restock grocery shelves provided a brief boost for some segments, but the economic shutdown now has taken a toll on the whole industry. While an economic restart likely will begin in May, the damage wrought during this period will weaken trucking conditions for months to come.”
Supply chain worries
The extensive job losses coupled with COVID-19 outbreaks across the nation are hurting America’s supply chains. Most recently dozens of meatpacking plants have seen outbreaks of the new coronavirus, where more than one in three of the nation’s biggest beef, pork and poultry processing plants are in counties with higher rates of COVID-19 than 75% of the rest of the U.S., according to USA Today.
“This is going to be typical of things that we are going to be finding out as we go through this,” Dieli said. “This is an interconnected economy and how things are affected and affect other things is going to be a major part of the effort that we're going to be making over the weeks ahead.”
“The lockdown does appear to have some of the desired effects that we've wanted to look for in slowing the spread of disease,” Dieli said on April 22. “We know there are a couple of states that seem to think they have reached the peak in their problem ... We expect to see more of this rather than less of this going ahead. While the improvement is spotty, it is an improvement.”
However, he added, the problem with this good news is politics. “Most of the work that I've been doing has centered around the technical aspects relating to the supply chain, and how that might affect how the economy performs. Having added a political overlay to it is going to complicate that process. Not so much because of the politics, which are always interesting and complicated, but because of the potential timing effects that this could have.”
That brings Dieli to residential construction, which as he noted, is trucking intensive: from the time land starts to be cleared for building to when a moving truck pulls away after unloading furniture (and everything in between), trucks are a vital part of the construction process. Residential building accounts for 25% of truckable fixed investment and 6% of the total truckable economic activity, according to Dieli.
Following the housing problems of the Great Recession, residential structure values have seen a steady growth from 2016 through the start of 2018 before seeing a slight decline in late 2018 that was followed by increases in late 2019.
“The good news here is that this industry is in what we would call basically good shape,” Dieli said. “The demographics of the demand for housing are quite strong, having to do with both the demographics of the population and the demographics of the housing stock. But, unlike the prior episode where we had a boom, we are running at a pace that is very much consistent with the supply of housing on a balanced basis and demand for that as well as housing affordability.”
What to look for in coming weeks
While construction has been considered an essential business in most states, building has continued across the nation. Dieli said to be on the lookout for pending government reports on GDP and unemployment due in the coming weeks could change the construction market.
“One week from today, we will get the first report on GDP for the first quarter … it won’t be pretty — and it will be revised twice,” Dieli said.
The first two months of 2020 saw gains in housing and employment before COVID-19 took over the national landscape midway through March. “The question will be how much of that effect will have been picked up in the first quarter number — and we won’t know that until we take that number apart,” Dieli said.
The next important report on the horizon is the April jobs numbers due out on Friday, May 8. “It will be astoundingly — with a capital astoundingly — bad,” he said. While the headlines expected about that jobs report are going to be negative, they won’t tell the whole story, he cautioned.
“The composition of what drives employment down is going to be far more important and one of the things that I will be looking for very quickly is to see what has happened in construction,” Dieli explained. “Because if construction has held up as we might suspect it still could, that will have bearing on what happened.
However, it will take time to analyze these reports to see what the first leg of the W-shaped recession Dieli has been cautioning about will look like.
“Very likely the (report) for May, which will come out in early June, as relates to employment is not going to be very nice to look at,” Dieli warned. “They are going to be part of the damage assessment. We still don't know how much damage has been done. So we still can't really say how long it's going to take to fix. But as we will be able to see through some of the data that we've already looked at, it is right in the mixed bag — some will have been hurt more than others, and their ability to recover and how that recovery proceeds really won't be fully known until we've had a chance to assess the damage.”
