US Groans from Consumption Cliff and Production Halt... Fed Says "Economic Activity Rapidly Contracts"

March Consumption Down 8.7%, Worst Ever Performance
Industrial Production Also Down 5.4%
Experts Say "Situation Worse Than Expected"

A store in New York City, USA, where all businesses except essential establishments have been suspended, is closed.
[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The novel coronavirus infection (COVID-19) has had a greater negative impact on the U.S. economy than expected.

The U.S. central bank, the Federal Reserve (Fed), stated in its Beige Book economic report released on the 15th (local time) that economic activity in the U.S. is rapidly contracting due to the COVID-19 outbreak.

The Fed forecasted, "All regions reported extremely uncertain outlooks, and most expected conditions will worsen over the coming months."

The Fed diagnosed that most regions showed various declines in production by industry, and despite increased demand for medical product manufacturing, production and supply chain disruptions are occurring. The Fed particularly assessed the retail sector's situation as severe.

Regarding employment, companies said, "Job losses are widespread, including in manufacturing and energy sectors," and predicted, "More unpaid leaves will occur in the short term." This signals that despite 17 million unemployed in three weeks, the unemployment 'storm' will continue to rage.

The Fed's assessment was confirmed by economic indicators released the same day. The U.S. Department of Commerce announced that retail sales in March fell 8.7% compared to the previous month. This is the largest decline since the Commerce Department began compiling related statistics in 1992. Considering the share of consumption in the U.S. economy, this exemplifies a serious economic downturn.

Industrial production for March, released by the Fed, also decreased by 5.4% month-over-month and 5.5% year-over-year. The Wall Street Journal (WSJ) diagnosed this as the largest drop since January 1946, right after World War II. Manufacturing production in March fell 6.3% compared to the previous month and 6.6% compared to the same period last year.

The situation in New York State, where COVID-19 infections are most severe in the U.S., is even worse. The Empire State Index released by the Federal Reserve Bank of New York for April plunged 56.7 points from -21.5 to -78.2. The decline was the largest ever, and the figure was the lowest on record. The Empire State Index is an indicator showing economic trends in New York State.

Chris Rupkey, MUFG Union Bank investment strategist, said in an interview with CNBC, "The U.S. economy is deteriorating more severely than Wall Street expected."

This implies that the optimistic views of Wall Street investment banks, which expect the U.S. economy to hit bottom in the second quarter following the first quarter, are overly optimistic. JP Morgan recently forecasted that the U.S. economy would shrink by 10% in the first quarter and 40% in the second quarter.