“There’s something happening here. What it is ain’t exactly clear.”
Buffalo Springfield wrote these words to the song “For What It’s Worth” in 1966, yet the words hold true today, after more than 50 years. The pandemic, social unrest, unemployment, economic recovery, education, trade conflicts, and health issues, are some of the issues we are facing today. We get a non-stop barrage of daily news about all these subjects. It is not exactly clear, and no one really knows what is going to happen.
COVID-19 cases in the US have topped two million. Over 500,000 people have recovered, and over 113,000 have died. The news that fewer people are dying is “good” news but concerning facts and fears about the pandemic remain. Yet, even the facts keep changing.
Dr. Anthony Fauci said in the beginning of March that wearing a mask is not 100pc protection from getting the virus. Soon afterward, he followed the CDC’s change of tack and recommended people wear a mask in public to prevent the disease’s spread. Likewise, the World Health Organization (WHO) said earlier this week that it was very rare for asymptomatic people to spread COVID-19, but then it walked back on that statement the very next day.
Dr. Fauci also disputed the WHO’s initial claim and said about 25-45pc of people are asymptomatic and can still spread the disease. This is just the latest example of the uncertainty surrounding the situation due to new data constantly emerging, and how it can also change in a heartbeat. When will the vaccine be available? How many doses will it take for us to be protected? Will there be a second wave, and when might it happen? It is not exactly clear.
I am not reviewing most of the economic indicators I usually do. My economic term is that they all suck. There are a few that I believe are worthwhile to learn more about because they will impact all of us. When I read that the May unemployment rate dropped to 13.3pc, I thought, are you kidding me? The headlines have said that close to 40 million people have filed for unemployment in the last 10 weeks. It took the US 10 years to add 10 million jobs and then in 10 weeks we lost 20 million jobs. Five million people were furloughed and started collecting unemployment because many unemployment restrictions were waived in April and May.
Also, 10.7 million self-employed and gig workers that got Pandemic Unemployment Assistance were classified as something other than unemployed [whatever that means]. Also, the National Federation of Independent Business reported that 73pc of small businesses that got the Paycheck Protection Program aid retained or rehired their workers. The bottom line is that many of the laid-off workers are now being rehired, while a still larger number are losing their jobs.
I have followed the ISM Purchasing Manager Index for a long time. It was up to 43.1 in May, compared with April’s 41.5; that is still in contraction. I took a deeper dive into the data and learned that the 18 different manufacturing industries surveyed are asked if their business is expanding or contracting. It is not a percentage-based analysis. It is just an average of whether your business is stronger or weaker this month. The seven metal-related manufacturing sectors were down sharply: transportation, prime metals, oil and coal, fabricated metal products, machinery, miscellaneous manufacturing, and electrical products.
Keeping that in mind, it is no surprise that the Shapiro Nonferrous Scrap Activity Index was down the same 40pc in May as it was in April. Aerospace was down 20pc from April and is down 38pc from Q1 2020. Automotive rebounded from zero in April to 20pc of what it was in Q1. The May forecast indicated auto startups were delayed due to supply chain issues, especially from the Mexico supply chain.
The auto industry is now forecasting sales of 12.7 million vehicles, down from the pace of 17 million units at which it has been running for many years. Since there has been very little auto production in the last 10 weeks and the dealer car inventory is very low, we could see auto production get back to near Q1 production to catch up, assuming we don’t have another severe wave of COVID-19 infections and another shutdown.
I am now anticipating a slow, bumpy increase in June manufacturing as companies return to work, particularly from auto and HVAC, and in Mexico.
China stopped forecasting its growth for the first time in 20 years due to the pandemic’s uncertainty. The reports from China are that 80pc of the factories are running at 80pc capacity of the pre-COVID-19 period. The May PMI is 50.6, down slightly from April. There are also issues with their exports due to the worldwide forecast of a 6pc contraction. To combat those issues, China has increased its spending on infrastructure, defense, and environment. Meanwhile, the rest of the world is also facing the same economic problems plus the COVID-19 issues.
Metal prices remained about the same as April. With the contraction in manufacturing and the sheltering in place, the volume of scrap was reduced and balanced out the lower demand for finished goods.
Recently, all metal prices have been picking up, mainly due to Chinese demand. The Shanghai prime aluminum inventories have been substantially reduced while the LME inventories are rising. China is predicted to produce 2pc more aluminum this year than last. Global demand is down 12pc year-over-year in April and down 9pc from Q1, therefore there is a good chance of a worldwide aluminum surplus. There is also talk of the US putting a “hard quota” on aluminum, which if put into effect, could bump up the Midwest premium by another 6-8 cents. Copper prices have also been rising based on the fundamentals. US steel mills are only operating at 54pc capacity. HRC hit a recent two-month high of $510/t.
The Organization for Economic Cooperation and Development [OECD] forecasts a 6pc global economic contraction. Its US forecast for GDP is down 6-7pc for the year. Both forecasts do not include a second pandemic wave. Ugh!
McKinsey & Company’s most likely scenario is that a second COVID-19 wave will occur, which would lead to a slow, long-term, bumpy growth rate along with a muted world recovery. Many economists think it will take us 10 years to fully recover.
“We make a living by what we get, but we make a life by what we give.” -Winston Churchill
Be well. Be safe. Life is good. Family is precious.