Two recent economic indices released by banks provide an insight into how the US business conditions have changed for corporates and their supply chains since the onset of the COVID-19 pandemic.
First up, the Citizens Business Conditions Index has revealed that the first quarter of 2020 was a tale of two US economies - one that was solidly grounded in January and another that found itself tipped upside down by the end of March.
While the Q1 2020 Index shows only a slight decline (from 61.0 to 60.8) because the full economic impact of the COVID-19 pandemic emerged late in the quarter, even that modest directional shift from past quarters reflects the gathering storm of the pandemic disruption.
“The U.S. economy was off to a strong start this decade and then the coronavirus spread globally and completely threw everything off track,” said Tony Bedikian, head of Global Markets for Citizens Commercial Banking. “Some sectors are doing better than others. Some have completely ground to a halt. The bull market went into a tailspin, though the government has stepped up to backstop the economy. The changes have been dramatic and more sudden than most of us have experienced in our lifetime.”
The Index is derived from a number of underlying components, most of which declined during the first quarter:
- The Manufacturing Purchasing Managers’ Index (PMI) from the Institute of Supply Management (ISM) was up due to increased certainty over US trade with China and Brexit, but the ISM Non-Manufacturing PMI declined.
- Unemployment increased during the first quarter and wage growth stalled as the pandemic put the brakes on growth in several sectors.
- Proprietary measures of business activity among Citizens Commercial Banking’s more than 7,000 clients across the United States moderated as some sectors were hit harder than others.
The Q2 Index will more fully reflect the economic impacts of the COVID-19 pandemic and early indications signal a significant downward move unless the current situation changes dramatically before quarter end.
The Index draws from public information and proprietary corporate data to establish a unique view of business conditions across the country. An index greater than 50 indicates an expansionary trend and points to improved business growth for the next quarter.
Freight data reveals supply chain slowdown
Meanwhile, even as demand for shipments of food, medical supplies and household goods soared in the second half of March, U.S. Bank data show that the number of shipments overall and the amount spent by companies that ship goods slowed during the first quarter of 2020.
U.S. Bank’s 2020 Freight Payment Index, a quarterly analysis of national shipments and spending, shows that shipments in the first quarter of 2020 fell 1.8% compared to the fourth quarter of 2019, and spending was down 3.7% compared to the previous quarter.
A notable exception was the Southeast region, where shipments were up 10.5% over Q4 2019, and spending was up 5.5% when compared to the previous quarter.
The U.S. Bank National Shipment Index fell 1.8% in Q1 - a reduced rate of decline from the fourth quarter of 2019, which showed a 4% decrease in shipments over the prior quarter.
According to the American Trucking Associations, trucking operators that move groceries, household goods and medical supplies outperformed the index, while carriers who haul goods for restaurants and auto plants saw their freight dwindle rapidly. The increase in shipments for “essential” goods did not provide enough of a bump to overcome the decline in shipments of other goods.
Spending by shippers was down 3.7% compared to the previous quarter (after falling 2.7% in Q4 2019). U.S. Bank says that weakness in spending during the first quarter was due to three factors:
- As COVID-19 cases began to increase in China in late January, shipments into US ports declined significantly - resulting in fewer goods to move and reducing spending.
- As demand for freight contracted, shippers began to seek lower rates from their carriers.
- Lower fuel prices, which resulted in reduced fuel surcharges.
The first quarter of 2020 was particularly strong: shipments were up 10.5%, and spending was up 5.5%. More than any other region, the Southeast regularly experiences surges in demand for household items like food, toilet paper and cleaning supplies in response to hurricanes and other severe storms. As a result, supply chains and trucking operators have more experience with rapid shifts in freight. In addition, the late start to stay-at-home orders in this region may have allowed for increased freight shipping activity.
Shipments were down 2.3%, and spending was down 5.8% in the quarter. Freight in the agriculture sector has been low for the last six quarters due to fewer exports during the trade war with China and a downturn in the factory sector. COVID-19 and the resulting business shutdowns caused many factories in the region to close, hurting motor carriers who haul freight from these factories.
Shipments were down 6.9% and spending was down 8.0% percent in the quarter. Like the Midwest, freight was adversely affected by the shutdown of factories and other businesses. Little freight left the region, hurting freight levels and revenue for carriers.
The West saw the worst impact among all regions for trucking volumes and spending during the first quarter. Shipments were down 14.5% - the lowest level in three years - and spending was down 10.4%. A significant part of truck freight in the West is related to international trade with China. Trade was down considerably as a result of continued trade wars and as the Chinese economy shut down to tackle COVID-19. As a result, freight coming into the West Coast ports declined, and trucking volumes were severely impacted. The West also was the first region in the US to directly experience COVID-19 cases, which hurt truck freight.
Shipments were down 4.1%, and spending was down 2.1% in the quarter. The region was likely impacted by the fallout in the West. Falling oil prices had a bigger impact in this region, hurting shippers and carriers that move energy products.
“Although spending and shipments were down, we saw an improvement in some of the numbers from last quarter - likely the result of a strong surge in shipments around food, cleaning and medical supplies, countered by a downturn in other sectors,” said Bobby Holland, U.S. Bank vice president and director of Freight Data Solutions. “We are working with both our shipper and carrier customers to help them manage cash flows and liquidity, as they navigate these unprecedented circumstances.”
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