Titanium, Stainless Steel and other specialty metal prices are driven by a wide range of economic variables. However, during sudden changes in economic circumstances, correlations between data points tend to increase. In other words, what drives the overall global economy is more likely to impact each sub-sector of the economy. For this reason it is important to evaluate the wider macro economic environment at least until the situation normalizes.
One major barrier to evaluating the macro economy is the speed of the primary underlying catalyst (COVID-19). Economic data is rarely collected on a weekly much less daily frequency yet in the last 6 weeks alone we know that the unemployment rate has increased from near record lows to depression-era highs. The rapid changes experienced in the economy make “high frequency” data more critical than ever to discerning how far the global economy has dropped.
Another reason high frequency data is so important is because small businesses are being negatively impacted more, on average, than large companies. And because small companies don’t report financial results and bankruptcy filings often don’t make the news, true visibility into the state of the economy is exceptionally low.
High Frequency Data – Week Ending April 18th
- Initial jobless claims – initial claims reached 26 million for the week ending April 18th (2 more weeks to report for April, the likely low point U.S. GDP). To put this into perspective, there were 159 million employed in the labor force as of February 2020 which implies the unemployment rate increased by ~16%. The data can’t be fully trusted yet because many states haven’t fully processed many claims due to technical issues.
- Rail car traffic (cars) was down 23% on a year-over-year basis.
- Steel production was down 34% Y/Y
- TSA checkpoint data was down 96% Y/Y (April 21)
- Hotel revenue per available room was down 79% (April 12 – April 18).
When lockdowns end, evaluating the strength of the rebound using these metrics will give a significant amount of visibility into the state of the economy.
lastly, as you evaluate economic data it is useful to think about each data point using ECRI’s three D’s:
- Depth – how far down an indicator falls/rises;
- Diffusion – how big of an impact will this metric have on the wider economy;
- Duration – how long will this trend last.
Other News Stories
The Wall Street Journal is reporting that companies have ongoing challenges related to supply chain management even as countries start to re-open. First, even with re-openings, many factories face complex issues related to workplace safety. Second, many suppliers face severe financial strain due to both the recent lockdowns and weak demand globally.
Fitch affirms Commercial Metals at ‘BB+’ due to its low cost position and flexible operating structure. Also, Commercial Metals benefits from diversified construction demand in both the U.S. and Europe.
SpendEdge – Exploring multiple sourcing options to mitigate supply chain risks in the medical device market is critical.