Record Unemployment Claims

Cities and states have been implementing new guidelines to keep citizens safe, as more cases of the coronavirus are confirmed daily. The United States now has the highest number of known cases of coronavirus in the world.

In an attempt to contain the outbreak, the government is placing restrictions on large public gatherings. Schools as well as “non-essential” businesses are closing. Sporting leagues such as the NBA, PGA Golf, NHL, MLB, and the MLS are currently suspending their seasons until further notice. Major music festivals such as Coachella, Stagecoach, and South by Southwest are being canceled or pushed to future dates. Popular vacation destinations like Disney Parks, Universal Studios, and SeaWorld are closing for the time being. Additionally, restaurants and bars are being temporarily shut down or restricted to take-out only.

The widespread shut down of businesses has led to a record number of Americans filing for their first week of unemployment benefits. In the week ending March 21, the advance figure for seasonally adjusted initial claims was 3,283,000, an increase of 3,001,000 from the previous week's revised level. This change in unemployment claims completely blows the previous record of 695,000, set in 1982, out of the water. A week later another record 6.6 million Americans applied for unemployment benefits, double that of the previous week. This  marks the end of the 113 months of US employment growth and likely the start of a recession. The March unemployment report will not include the filings because the household survey reflects data in the week between March 8th and March 14th. 

During the last recession, the unemployment rate reached a high of 10% in October 2009. According to Steven Blitz, chief US economist at research firm TS Lombard, the unemployment rate is expected to jump to 10.6% in the second quarter, possibly by April. Furthermore, in February, the Wall Street Journal asked a panel of 70 or more prominent economists, when they expected the next recession. Approximately 56.9% believed that we would be in a recession within the next nine months, and this was before the coronavirus began shutting down businesses in the US.

By Rodolfo Rodriguez and Ben Gonzalez

Coronavirus Impact on US Trucking and Supply Chain

by Rodolfo Rodriguez and Ben Gonzalez

States are beginning to increase restrictions with the growing number of reported coronavirus cases. These states include New York, California, Louisiana, Ohio, Illinois, Connecticut, Oregon, New Jersey, Delaware, Massachusetts, South Carolina, Michigan, and Indiana. And as Americans grow more nervous about the implications of the global pandemic, customers across the country have been clearing supermarkets. To keep up with the high demand, retailers have ramped up distribution. For the food supply chains, that means longer hours and labor shortages, especially for those in transportation.

Shipment volumes for February 2020 fell 7.5% over the same period in 2019 as shown in the chart above, but the index improved sequentially from the previous month. January may have been the bottom, but the coronavirus concerns leave open the possibility for lower demand, particularly from imports, or at least a delay in improving activity. Of concern, the Port of Los Angeles reported a 23% y/y drop in imports for February. Overall trucking activity may be offset by a surge in demand for shipping food and household products to retailers, as customers continue panic buying and stockpiling staples (ie bread, milk, meat, eggs, toilet paper), leaving shelves empty at grocery stores.

Amid the surge in trucking demand as a result of the coronavirus outbreak, U.S. highway-safety regulators are suspending rules that limit daily driving hours for truck drivers moving emergency supplies such as medical equipment, hand sanitizer, and food. To ensure safety on the nation’s roadways, drivers may inform motor carriers that they need immediate rest and must be permitted at least 10 consecutive hours off duty. While on the road, however, some truckers are facing difficulties due to the closed state-run rest stops and sit-down restaurants. Additionally, some drivers are refusing to haul goods to highly infected states such as New York or Washington. Although many truck drivers may be working overtime, overall, the supply chain can sustain some disruption. Our food system can deal with the current demand and the empty shelves should only be a temporary inconvenience.

Market Rate Cuts Triggered by Coronavirus

By Rodolfo Rodriguez and Ben Gonzalez

The Federal Reserve slashed the federal-funds rate by half a percentage point to a range between 1% and 1.25%, as the risk of a recession rises amid the coronavirus epidemic. This was the first rate change in between scheduled Fed policy meetings since the 2008 financial crisis. Major market indices declined and the yield on the benchmark 10-year U.S. Treasury fell below 1% for the first time. In overnight trading on Sunday, March 8th, the 10-year Treasury yield fell below the 0.5% for the first time in history as the coronavirus, coupled with an oil price war, sent investors flocking to safe havens.

Investors and economists are expecting the Fed to lower rates again in the coming weeks or during the next March meeting. Goldman Sachs economists don’t expect a recession, but have downgraded the U.S. growth forecast to an annualized rate of 0.9% in the first quarter.

Coronavirus reports continue to emerge globally with Italy being afflicted the most after China and South Korea.

Italy’s cases more than doubled this week from about 2,500 infections on Wednesday to more than 5,800 on Saturday. As a result, Italy is following China’s suit and locking down its northern regions, home to a quarter of the population, until at least April 3. To alleviate economic shortcomings the national government has been actively working to safeguard the market for “Made in Italy,” announcing 716 million euros to support impacted businesses. Those in the affected areas are being compensated through frozen mortgage and utility bill payments while the government attempts to increase its deficit to provide longer-term support to the people and economic sectors.

China, which was initially slow to respond to the virus, is expected to lower interest rates soon as Hong Kong’s Monetary Authority (HKMA), the city’s de facto central bank, matched the Federal Reserve’s half-point interest rate cut. However, since the People’s Bank of China (PBOC), the nation’s central bank, lent banks an extra 800 billion yuan (US$115 billion) in February to help out to struggling businesses and farmers, it is not likely to lower rates as low as the US Federal Reserve.

Meanwhile, South Korea's central bank has announced that it will be quarantining bank notes for two weeks to remove any traces of coronavirus and even burning some as part of efforts to stem the outbreak. Australia’s central bank has cut interest rates by 25 basis points to a new record low of 0.5 percent and the World Bank has announced that it would provide up to $12 billion in funding for countries to improve their responses to the coronavirus outbreak

Edited by Jessie Waldheim

By Rodolfo Rodriguez and Alejandra Lopez

The coronavirus outbreak continues to grow as Wall Street ends its worst week since the 2008 financial crisis. Fear of the coronavirus causes investors to panic sell. Consequently, the Dow Jones Industrial Average and the S&P 500 have each dropped about 13% and 14% from their record high set on February 19. Meanwhile, the Nikkei 225, a stock market index for the Tokyo Stock Exchange, has plunged 10.8% from recent highs. So far, the coronavirus wiped $3.18 trillion in market value from U.S. stocks this week. We are in the middle of one of the most severe stock market declines of the last 90 years. It’s only matched by the declines of the 1930s, 1987, 2001, and 2008.

The 2,000-point Dow Jones plummet brought a downturn in various industries as global health concerns over COVID-19 decrease oil and travel demand. Air travel demand this year will decline for the first time since 2009 and cost airlines over $29 billion in revenue, the International Air Transport Association warned last week. Airline stocks -- a target for coronavirus-related sell-off -- are down approximately 21% year to date -- worse than the decline of the Dow Jones Industrial Average. American Airlines Group (NASDAQ:AAL) shares declined over 9% on Thursday and Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV) fell over 6%. Companies expect to experience declines in revenue in the first quarter due to over 200,000 in already cancelled flights to and from China. The Deutsche Bank and Buckingham downgraded a number of airline stocks including American, Alaska, Delta, Spirit, JetBlue and United, believing it is likely that “COVID-19 will disrupt travel patterns beyond China” with new cases rising outside of China raising the over 81,000 number of cases. 

AirAsia X shares fell by 5% on Friday to a record low. The airline, whose flights to and from mainland China accounted for around 30% of their capacity before the outbreak, has been heavily impacted with 600 cancelled flights for March, and is considering selling two A330s to gather up to $100 million. In China, cancellations are higher than ticket sales, while Japan, Korea and South East Asia are showing declines of 60% to 75%. Stocks across the board are in retreat. All 11 sectors of the S&P 500 SPX posted declines from February 19^th through February 27^th. The energy sector, with an oversupply of oil, tops the list with a 1.6% price change since February 19^th.

In the petroleum industry, oil prices are down over 4% in early trading, falling to their lowest level in over a year. The industry shocks have worsened since the IEA warned earlier this month that global demand would fall in the first quarter of the year. The SPDR S&P Oil & Gas Exploration and Production index is down about 5%. WTI fell to $47.25 per barrel -- the lowest price since January 2019. China’s largest oil company, Sinopec’s shares have lost 9.2% over the last three months.

Additionally, dozens of companies have seen their stock prices decline by double-digits as a result. As of Thursday during the last week of February, Whiting Petroleum (NYSE:WLL) declined 23%, Antero Resources (NYSE: AR) 11.5%, Chesapeake Energy (NYSE:CHK) 12.%, Continental Resources (NYSE:CLR) 15.5%, and Gran Tierra Energy (NYSEMKT:GTE) 10.8%. Furthermore, citing the blow to global oil demand, Goldman Sachs told clients it is cutting its 2020 oil demand growth forecast in half to 600,000 barrels a day. 

USMCA

The Agreement between the United States of America, the United Mexican States, and Canada (USMCA), was proposed by US president Donald Trump and signed on November 2018 to replace the old North American Free Trade Agreement (NAFTA). Additionally, a revision of the USMCA was recently signed on December 2019.

Under the new agreement, the US has tariff-free access to 3.6% of the $15.2 billion Canadian dairy market, 75% of an automobile’s value must come from within the governed regions to qualify for zero tariffs (up from 62.5% under NAFTA), 40-45% of auto content must be made by workers earning at least $16 per hour by the first five years after ratification, and Mexico must pass legislation that improves the collective bargaining capabilities of labor unions. As well as provisions for intellectual property and digital trade.

Meanwhile, the recent revision added commitment that all parties will adopt, implement, and maintain seven multilateral environment agreements (MEAs), demanded new mechanisms and resources to ensure that the US government effectively monitors compliance with the agreement’s labor obligations specific to Mexico, and removed provisions that contribute to high prescription drug prices.

Source: Census.gov

The US and China Phase I Trade Deal

The US and China Phase I trade deal signed by US President Donald Trump and Chinese Vice Premier Liu He will cut tariffs on $120 billion in Chinese products in half from 15% to 7.5%.  In exchange, China pledges to purchase $200 billion more American energy, farm, and manufactured goods over the next two years and address US complaints about intellectual property practices. The purchases will increase total exports to China to over $260 billion in 2020, and about $310 billion in 2021.

China agreed to purchase an additional $32.9 billion of manufacturing goods in 2020 and $44.8 billion worth of goods in 2021. China also agreed to purchase $18.5 billion of additional energy products in 2020 and $33.9 billion in 2021. Regarding services, China agreed to $12.8 billion and $25.1 billion of purchases above the 2017 total, in 2020 and 2021, respectively.  Additionally, China agreed to purchase additional agriculture products of $12.5 billion and $19.5 billion in 2020 and 2021, respectively.

In turn, the US agreed to reduce the tariff rate on $120 billion worth of Chinese goods from 15% to 7.5%. The US tariffs of 25% on $250 billion worth of Chinese products will remain unchanged. The tariffs that were set for December 15, 2019 on $160 billion worth of Chinese products have been suspended. China's planned 25% tariff on US automobiles were also suspended.

The deal will also strengthen Chinese legal protections for patents, copyrights, trademarks, and procedures to combat online counterfeit and pirated goods and infringement. In the currency agreement, China pledged to refrain from competitive currency devaluations and from using the exchange rate as a trade advantage.

By: Alejandra Lopez and Rodolfo Rodriguez

The world health organization has announced an official name for the disease that is causing the 2019 novel coronavirus outbreak, first identified in Wuhan China. The new name of this disease is coronavirus disease 2019, abbreviated as COVID-19. Much is unknown about the virus. It is believed to originate from an animal source but is now spreading from person-to-person similar to influenza and other respiratory pathogens.

Economically, epidemics are similar to natural disasters. For instance, a large number of Chinese tourists are spending very little money during Q1 2020. Due to lack of tourism, China and other Asian countries such as Cambodia, Thailand, Singapore, and Vietnam will face a loss of income.

Additionally, more than 20 provinces and other regions have been instructed to extend the New Year holiday until February 10. These parts account for 80% of national GDP, and 90% of exports. In turn, Asian countries along with Chile, Peru, South Africa, Russia and Brazil who rely on China’s intermediary goods will suffer as well.

Global crude oil demand will decline in the first quarter of the year for the first time since the 2008 financial crisis. Brent crude oil and WTI prices have fallen over 20% from the 2020 peak in January. This demand is forecasted to continue to fall throughout the first three months of 2020 due to the economic slowdown in China, the world’s biggest oil and natural gas importer, caused by the coronavirus outbreak. World fuel consumption will grow by 435,000 barrels a day during the three-month period instead of the previously anticipated 800,000 barrels a day. Double-digit percentage falls in oil prices this year have been exacerbated by the economic downturn in China. The coronavirus’ effects will cut annual growth by an estimated 30%, to 825,00 barrels a day, the lowest point since 2011. This is a more significant effect than that of the 2003 SARS epidemic due to China's increased integration with the world economy. This month, the Brent crude price rose 1% to $56.34 a barrel yet it remains 18% below a peak reached in early January.

Oil and petrochemical refineries are scaling back operations due to declining demand for their products. The demand for Chinese jet-fuel is expected to fall 14% below last month's forecast for the first yearly quarter. And gasoline and diesel fuel demand will fall 13% and 12% below last month's forecasts. Global oil refiners will be hit by this decreased demand. The IEA's global refinery runs forecast for 2020 is 700,000 barrels a day. Without the impact of the coronavirus on global demand, OPEC might have successfully balanced the oil market this year.

by Rodolfo Rodriguez and Alejandra Lopez

https://www.eia.gov/outlooks/ieo/pdf/ieo2019.pdf

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