Macroeconomic Outlook

As new data is released, the extent of the economic impact of the back-to-back black swan events is coming into focus. US Industrial Production has taken a noticeable hit; monthly Production in April was 15.8% below the April 2019 figure. Preliminary first-quarter data for US Real Gross Domestic Product, down 1.2% from the previous quarter (4.8% annualized contraction), also reflects the impact of the black swans. While the overall impact to the US economy has been negative, there are, as always, relative winners and losers. We’ll start with the bad news:

  • Automotive: US Automobile Production fell 99.5% from March to April. This is demonstrative of supply chain disruptions, manufacturing shutdowns, and a lack of demand, as exemplified by the nearly 50% decline in monthly US Light Vehicle Retail Sales over March and April.
  • Oil and gas: The US Rotary Rig Count fell 26.7% to 566 rigs in April – the worst case of March-to-April decline in the nearly 80-year data history – due to very low oil prices and concerns about storage.
  • Discretionary retail: US Furniture and Home Furnishings Retail Sales in April were down 66.3% from April 2019. Other weak areas include apparel, restaurants and bars, and general merchandise stores.
  • Aerospace: US Nondefense Aircraft and Parts New Orders were negative for the month of March; in other words, cancelled orders exceeded new orders.

It is important to remember that not all markets are doom and gloom. Economic ‘winners’ can still be identified.

It is important to remember that not all markets are doom and gloom. Economic “winners” can still be identified. If possible, consider targeting these markets as areas of opportunity:

  • Food for at-home consumption: The US Consumer Price Index for Food and Beverages posted the second-most robust case of March-to-April rise in the data history. Furthermore, monthly US Food and Beverage Stores Retail Sales were up 13.3% in April versus one year ago. Markets such as food processing machinery likely present opportunities due to increased demand for certain foodstuffs used in home cooking, the need to protect processing plant workers, and shortages of key products such as meat and eggs.
  • Online sales: Monthly US Nonstore Retail Sales were up 21.2% in April from April 2019, suggesting that consumers have shifted toward shopping methods that require less human interaction. Consider how you can bolster your online presence.
  • COVID-19 products: It is likely that assorted niche markets, such as face masks, ventilators, air quality systems, and disinfectants, will perform well due to COVID-19.
  • Defense industry: We expect that the defense industry will perform well despite the black swans, with annual US Defense Capital Goods New Orders expected to rise through at least this year.

Make Your Move

If the ongoing effects of the black swan events are hitting your markets hard, consider cost-cutting measures such as pay freezes, hiring freezes, or the elimination of overtime.

Investor Update

Trends in the S&P 500 are shaping up to be a replay of what occurred in 1987, with a bear market lasting only three months if the March low holds. Although the low may be behind us, don’t expect the rise to continue uninterrupted.

ITR Economics' Long-Term View

2020: Decline

2021: Recovery and Rise

2022: Growth