Tuesday, March 31, 2020

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‘I cannot answer the future-outlook questions — too many unknowns.’

The coronavirus has brought one thing to all corners of the U.S. economy: uncertainty.

As has been chronicled several times over the last two weeks, strategists, corporate executives, investors, and consumers are all at a loss to grasp what the future of the economy might look like given the unprecedented challenges presented by trying to contain the coronavirus.

Seemingly every hour another company withdraws its 2020 guidance.

And it seems that almost every day brings with it another shockingly poor economic data point.

On Monday, that data came from the Dallas Federal Reserve, which published its latest manufacturing outlook survey. The survey was taken between March 17-25 and received responses from 110 businesses in Texas.

The headline index was a stunner: the general business activity index dropped to -70 in March from 1.2 in February. This is the lowest reading on record. And the comments received by the Dallas Fed from respondents add another important chapter to the story of an economy that has come to a standstill.

“I cannot answer the future-outlook questions—too many unknowns,” said an executive in nonmetallic mineral product manufacturing.

A respondent from the primary metal manufacturing industry added, “The business disruption due to COVID-19 is causing cancellations and holds from a majority of large customers. We are looking at the possibility of heavy losses for the coming months until the national health emergency stabilizes.”

A response from the food manufacturing industry also outlined how rapidly changing consumer habits and preferences are stressing supply chains.

“The coronavirus pandemic is increasing the stress on an already strained supply chain,” said one manufacturing executive.

“The shift in food consumption from restaurants and cafeterias to in-home has caused a surge in business over the last 30 days,” the executive in food manufacturing told the Dallas Fed.

“The workforce remains healthy, as does the raw-material supply chain. However, the shift in demand to packaged food is quickly depleting the finite supply of packaging materials. Shortages of packaging supplies are expected to impact our ability to produce in late April. Additional packaging supplies (sourced globally) are estimated to become available in early June. If high demand for packaged food remains at current levels, serious shortages should be expected in May. The situation is changing daily. Next week will surely have modifications.”