Lack of economic data after COVID-19 makes forecasts difficult

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Prices of consumer goods rose more than expected last month, according to data released Wednesday.

The consumer price index for all urban consumers (CPI-U) rose a seasaonally adjusted 0.1% in February after gaining 0.1% in January, the Labor Department reported. Economists surveyed by IFR Markets had expected CPI to have remained unchanged last month.

The all items index has increased 2.3% before seasonal adjustment in the past 12 months.

“Increases in the indexes for shelter and for food were the main causes of the increase in the seasonally adjusted all items index, more than offsetting a decline in the energy index,” Labor said in a release. “The food index increased 0.4% over the month, with the food at home index rising 0.5%, its largest monthly increase since May 2014. The index for energy fell 2.0% in February, with all of its major component indexes declining.”

The index for all items less food and energy rose 0.2% in February, after rising 0.2% in January.

Along with the index for shelter, the indexes for apparel, personal care, used cars and trucks, education, and medical care were among those that increased in February. The indexes for recreation and airline fares declined over the month.

The all items index increased 2.3% for the 12 months ending February, a smaller increase than the 2.5% for the same period in January.

The index for all items less food and energy rose 2.4% over the last 12 months. The food index rose 1.8% over the last 12 months, while the energy index increased 2.8% over that period.

The food index increased 0.4% in February, after rising 0.2% in January. The energy index declined 2.0% in February after falling 0.7% in January. The index for all items less food and energy increased 0.2% in February. The index for all items less food and energy rose 2.4% over the past 12 months.

"It is virtually impossible to forecast with a high degree of certainty the specifics of how the coronavirus will play out,” said Stifel chief economist Lindsey Piegza.

"We expect consumer price inflation to slow further in the months ahead as slowing global demand and lower energy prices push down U.S. inflation," said Scott Anderson, chief economist at Bank of the West. "Treasury yields are lower this morning as the flight to safety bid continues ... Our forecast is the Fed will cut another 50 basis points at the March FOMC meeting with an additional 25 basis points in cuts in April."

While the most recent data released shows economic strength, it has been collected and collated before the effects of the COVID-19 virus became widespread.

“Amid a lack of data and details, it is virtually impossible to forecast with a high degree of certainty the specifics of how the coronavirus will play out,” said Stifel chief economist Lindsey Piegza. “Dismissing much of the noise, however, the U.S. economy is seemingly trapped between two viable scenarios — not great’ and ‘worse,’ both of which warrant additional Fed action — although the question remains, by how much and for how long?”

She looked at what was expected going forward.

“Base case, we anticipate one quarter of negative output and a modest pace of recovery, however, depending on the depth and duration of the impact, repressed activity could easily be extended to a technical recession — meaning two or more consecutive quarters of negative output — and a slower recovery timeline,” she said. “Furthermore, a low level of rates in the U.S. is expected to be sustained for some time as the Fed and federal government struggle to stave off the negative impact of the global downturn.”

Meanwhile, recent moves to bolster the economy could have positive impacts in the near-term, some economists say.

“The opportunities provided by a payroll tax holiday and a temporary suspension of tariffs imposed by the president could be significant. The tariff suspensions are at the president’s discretion and can be implemented immediately,” said Steve Skancke, chief economic advisor at Keel Point. “While the payroll tax suspension requires Congressional approval, it is simple, effective and supports the primary goal of keeping people on the payroll and confident about spending.”

He said that geo-political uncertainties will continue to cause unease among investors.

“So while the market is looking for some sign of fiscal stimulus support for the economy, it will be jittery when nothing timely seems forthcoming. It can trade down or up during the day based on stimulus news that will continue to come out. Meanwhile, new cases of coronavirus are being reported and the OPEC+ oil-price fight continues creating additional uncertainties,” Skancke said.

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