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Despite Covid-19, Signals Of Economic Health Continue

(Friday, March 6, 2020,  8:00 p.m. ET) — Despite growing fear of Covid-19, the U.S. economy continued to show surprising signs of strength, according to data released this past week.

The Organization of Economic Cooperation & Development (OECD) normally updates its forecasts twice a year. Due to fears over the coronavirus, however, the alliance of the world's developed economies chose not to wait until May to issue its next forecast.

On March 2, in an interim forecast OECD made some surprising revisions to its forecast for global economic growth.

The OECD shaved its forecast for U.S. growth in 2020 by one-tenth of 1%. OECD expects the U.S. to grow 1.9% in 2020, a reduction from its forecast in November for a 2% rate of growth.

Worldwide, OECD projected a rate of growth in 2020 five-tenths of 1% lower than in November.

The OECD expects the U.S. to be able to fight off Covid-19's effects much better than than the G-20, as well, an alliance of the U.S., European Union and other major world economies. OECD reduced its expected growth rate in China by eight-tenths of 1%.

Meanwhile, the Institute of Supply Management (ISM), released its monthly survey of purchasing managers at big businesses and February's survey, which occurred after the outbreak. Surprisingly, it surged from 55.5 to 57.3.

The non-manufacturing index (NMI) accounts for 89% of U.S. economic activity and created 91% of the new non-farm jobs in the U.S., over the past decade, according to U.S. data.

ISM says a reading above 50 indicates that the non-manufacturing economy is generally expanding; below 50 indicates that it is generally contracting. An NMI® above 48.6, ISM says, generally indicates an expansion of the overall economy. The February figures from ISM show no sign of a recession mentality among corporate purchasing managers, despite the Covid-19 outbreak, which first hit headlines in mid-January.

"The past relationship between the NMI® and the overall economy indicates that the NMI® for February (57.3) corresponds to a 3% increase in real gross domestic product (GDP) on an annualized basis," said ISM.

February at 57.3, up from January's 55.5, and December's 54.9.

And then on Friday morning, the Bureau of Labor Statistics announced that 273,000 net new jobs were created in February. By February, fears of Covid-19 had hit the headlines, yet a surprisingly large number of jobs were created anyway.

Job formation slumped dramatically preceded the last two recessions. Nothing like that was happening February after the outbreak first hit the news.

The Standard & Poor's 500 dropped 1.7% Friday, but eked out a small gain after a very volatile week. The index remained in correction territory, more than 10% from its recent peaks, closing at 2,972.37, despite surprisingly strong economic data reports.


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This article was written by a professional financial journalist for Excomp Asset Management, Ltd. and is not intended as legal or investment advice.

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