July 2, 2020
Categories:
Has the Economy Recovered from COVID-19?
As has been the case for the last few weeks, the data we have from this week appears to be remaining stable. This of course begs the question, has the economy recovered? While certainly plenty of damage has been done to the economy, there is no doubt that the economy has bounced back significantly and may have possibly reached its “new normal”. This week, given that the month of June has come to a close, we will be doing a month by month comparison, comparing 2020 to the years 2017-2019.
Purchase Orders
Credit approval requests were slightly down this week at 73% of normal levels, after reaching 78%, 76%, and 81% over the previous three weeks. Total dollars seemed to have stabilized as well at 78% of normal levels, after hitting 147%, 78%, and 101% during the previous three weeks, with that 147% primarily be driven from a single extremely large purchase order. While these numbers may not be very promising, these percentages are calculated against an annual average and does not take into account monthly fluctuation.
Comparing the approval volume from 2020 to the average volume between 2017 and 2019, we will find that January 2020’s volume was pretty much normal, at 93% of the volume we experienced in the Januarys of the previous 3 years. February 2020 began to show a slowdown as the volume was only at 77% of previous years’ Februarys. While COVID-19 may not have appeared to be a problem in the US back in February, it was already creating supply chain problems for importers from China and elsewhere in Asia, and this could help explain the decline in volume. The pandemic didn’t really impact the US until March, and it was only the final week in March when the first stay-at-home orders were put in place and businesses were forced to close, as a result volume was down to 61% of previous years’ Marchs. April of course was the height of the pandemic and volume in April plummeted to 43% of previous years’ Aprils, and only improved slightly in May to 48%. However, as many stay-at-home orders began to get lifted towards the end of May and most businesses were able to open up in June, June’s volume climbed to 96% of previous years’ Junes. It will be interesting to see if July can stay on pace, but this monthly data is a very strong indication of an improved economy as it averages out all of the weekly fluctuations we have been seeing.
Purchases
If we ignore the one very large purchase we had last week, purchases remained steady this week at 69%. While this may not be as high as they had been at the start of the month, it is still a very significant improvement over earlier in the pandemic when they averaged only 52% during the months of April and May.
We’ve been saying all along how purchases tend to fluctuate wildly from week to week, which of course makes the data a little hard to read. However, if we aggregate the data by month, as opposed to by week, those fluctuations should be flattened out. It is also important to note that the weekly data was being compared to annual average, and it too does not account for normal monthly fluctuations. So starting with January, we found that this year’s purchases were 92% of the average January from 2017 to 2019, which is perfectly in line with what we saw from approvals. Furthermore, supply chain problems in Asia would not have been impacted at this point in time as any ships would have departed prior to the first reported cases of COVID-19 in China. February saw purchases drop to 74% of the previous three years’ Februarys, quite possibly due to supply chain issues that emerged in Asia back in January. Purchases in March dropped further to 67% of the previous three years’ Marchs, as businesses began to shutdown at the end of the month and stay-at-home orders began to get implemented. April of course continued the descent to 44% of previous Aprils’ purchases, as some businesses were still open at the start of the month, and others still accepted orders placed prior to stay-at-home orders. Purchases bottomed out in May at 37% of the average May over the previous three years. However we did see a major rebound in June when purchases climbed to 59% of June’s average over the previous three years. The large discrepancy between purchases and purchase orders is due to the fact that purchase data tends to lag behind purchase order data be several weeks as it takes time to put together the orders, especially the larger orders that make up the bulk of these numbers. June’s purchase order numbers should be a very strong indication that purchases will return to near normal levels in July.
Payables
Payables continue to remain on track and heading in the right direction all across the board. Total outstanding dollars are up 5.5% making this the 5th consecutive week of growth, while the number of accounts with an open balance and the number of open receivables both climbed by 9%. Meanwhile, extremely past due invoices continued to get paid down this week.
While we did see an increase in current receivables, with total number up 1.7% and total dollars up 2.8%, these numbers aren’t growing as quickly as they had over the past few weeks. Still 72% of all receivables and 83% of all dollars are current, which is well above what would be considered normal. Even more amazing is that current dollars are now at 97.5% of where they were at on March 1st.
Meanwhile, the 1-30 day past due bucket made it first very significant increase since mid-April. The number of invoices in this bucket grew by 25%, while total dollars in this bucket grew an amazing 60%. Despite these large increases, there is little cause for alarm as it is probably due to the increase in current receivables that began at the start of June. Furthermore, the number of invoices still only account for 20% and total dollars only account for 10% of all receivables, again, both well below what would be considered normal. When you add up both the numbers and dollars that are either current or in the 1-30 days late bucket, they are within 2-3% of what would be considered normal. This is most likely due to the declining, but still unusually large amount of severely past due invoices, combined with slower purchases over the past two months due to the pandemic.
The 31-60 days beyond terms bucket also continued its sharp decline this week, with total numbers dropping by 25% and dollars dropping 39%. These invoices now only account for 1.8% of all invoices and 0.5% of all dollars. Both of these numbers are less than half of what would be considered normal, which is not surprising given that all these invoice were created in the month of April when businesses would have been well aware of the challenges that they would be facing.
Last week we saw some very worrisome data where invoices that were more than 61 days beyond terms seemed to only age further, with very little getting paid. Luckily this week saw some significant progress, both with invoices that are 61-90 days late and invoices that are over 91 days late. We saw a 12% decrease in the number of invoices and a 8.5% decrease in total dollars across these two buckets. These invoices now only account for 6% of both number of invoices and total dollars outstanding. While this percentage is unusually high, we are definitely seeing progress in this category, and the start of this week has seen several more of these invoices getting paid off which should lead to more good news next week.
State-by-State
Once again, it appears that businesses in states that have taken greater precautions in preventing the spread of COVID-19, have not only outperformed those in states that were less precautious, but that business in these states has indeed returned to normal levels. Whether we compare states that closed either before or after March 28th, states that reopened either before or after May 9th, or states that were experiencing surging COVID-19 rates as of June 23rd to those that were remaining stable or declining, businesses in states that took a stronger stance against the virus and managed it better are outperforming their peers.
When we look at states that implements stay-at-home orders prior to March 28th, we can see that from March 28th through May 9th, businesses in these states operated at 74% of normal levels, and since May 9th have been operating at 98% of normal levels. Businesses in states that didn’t implement orders until after March 28th on the other hand, only operated at 22% of normal levels prior to May 9th, and 69% of normal levels after May 9th.
Looking at states that began reopening prior to May 9th, businesses in these states were operating at 25% of normal levels prior to May 9th, and have been operating at 51% since May 9th. However, businesses in states that waited until after May 9th to reopen have fared much better, operating at 61% before May 9th, and 102% since May 9th.
Unfortunately, at this time COVID-19 cases appear to be surging across the country, including in states that seemed to have gotten the virus under control over the past two months. However, with approximately half the states surging as of June 23rd, that still seems an appropriate date to use for making comparisons. Businesses in states that were surging had been operating at 49% of normal levels prior to May 9th, and at 64% after May 9th. While businesses in states that weren’t surging as of June 23rd actually fared worse prior to May 9th, only operating at 44% of normal levels, but have done much better since May 9th, operating at 118% of normal levels.
What is most interesting is the progression we see from states that were first to close, to states that waited longer to reopen, to states that appeared to have the virus under control. The businesses in these states seemed to do progressively better in each comparison, which would indicate that taking the measures necessary to contain the virus is actually in the best interest of businesses, even if it means that they may not be operate for an extended period of time or forced to operate at reduced capacities. The fact that states that weren’t surging as of June 23rd have gone from worse to much better than their peers, shows that regardless of how the state tackled the virus early on, what matters most is what they are doing now to contain it. In other words, every state who acts appropriately now to contain the virus should be able to strengthen their economy, regardless of how they handled the pandemic in the past. Clearly consumers feel more confident spending their money when there is less risk of getting sick in the process.
While the economy hasn’t returned to normal yet, it does appear that it may have returned to normal in the states that have acted responsibly in controlling the COVID-19 pandemic. It also appears that the economy may have reached a level that could be considered a “new normal” at least until a vaccine becomes available. Of course, if states that are experiencing surges right now, such as Florida, Texas, and Arizona, can get the virus under control, it is quite possible that the economy could experience a full recovery. Only time will tell if this is indeed the case.
