Total non-farm payroll employment fell by 701,000
in March, and the unemployment rate rose to 4.4 percent. Employment in
leisure and hospitality fell sharply, with smaller job losses in other
industries.
BUREAU OF LABOR
STATISTICS
The Unemployment data was released today, and it was bad.
Not only because it showed a recessionary decline, but because every estimate I
had access to was painfully off, coming in at only -100K and a pickup of the
unemployment rate from 3.5 to 3.8%. This is worth noting in that this week has
seen an enormous rise in worst case narratives from both public and private
entities. Along with today’s unexpected employment data the overall picture is
moving quickly from under control to open ended. In my opinion I think this is
both intentional and useful. Intentional because just as the US is under strict
behavior guidelines for the private sector, so too are much of the western
democracies. Now the same worst case scenarios are coming from the governments
harsh predictions resulting from the pandemic. With that, the
unemployment number for April, which could likely be overestimated, could move
the markets into a direction that when everyone is looking for the worst, small
positive surprises count.
The Markets
The declines for the broad markets this week were more on
the back of expectations of the upcoming unemployment data as well as
realization beyond those expectations. However, what seemed to capture the
narrative was talk about a potential meeting of energy company executives at
the White House and unconfirmed conversations between the US, Russia and Saudi
Arabia. The outcome was a vigorous move higher in the price of oil that has
seen over a 60% decline in it’s price since the beginning of the pandemic
crisis, helped by Saudi and Russian fighting over who could flood the globe
with more oil at a time when usage sharply declined. For now, markets could
experience less volatility as the typical investment posture at the beginning
of a quarter is to wait it out for the string of economic releases that should
start to speed up in the second week of April, just in time for more bad news.
The Economy
The challenging mix of results overwhelmed by the
unemployment data has kept the markets in an uncertain state. Starting with the
PMI (Purchasing Managers Index) for the manufacturing sector, came in at 49.1,
unsurprising that much of the economy for production of durables and general
products has had mixed data for some time. As a smaller piece of GDP, the
companies that include energy are expected some recovery, but how much is less
important than those sectors that serve the consumer. Those sectors saw the PMI
non-manufacturing data come out at 52.5. This was totally underestimated by
economists who expected it to be around 40, far below the level of expansion,
which is 50. The number was also at odds with the services industry which by
most measure, especially today’s unemployment data, was a huge casualty of the
corporate shutdowns. Further uncertainty is that global data isn’t as
synchronized as one might expect, or exponentially harsher for countries like
Italy than Germany, consider the former has had a much harder time managing the
pandemic. This highlights those countries with the most vigorous economies
coming into the crises had much more to give up. Perhaps except for China, I’ll
leave it there.
External Events
The commotion over oil is curious at best. For some of us
who remember the rise in the price of oil to $100 early in the financial
crisis, the broad understanding was that energy at that price would cause a
recession based on consumer demand for gasoline, heating oil and natural gas.
Flash forward to the recent media narrative that suggested oils price decline
contributed to the decline in the broad indexes. First, energy is roughly 8.2%
of the global economy and 5.8% of the US economy and shrinking. That would
suggest energy should have limited effect on the capital markets, with the
possible exception of its debt, and therefore this week’s positive news on the
commodity couldn’t stop the market declines and, in my opinion, won’t. Further legislation
is being hammered out in Washington that includes infrastructure and further
aid to small business. Apart from some ideological additions the outcome should
amount to over a trillion dollars. But there you have it, this week’s
unemployment data was bad, April should be worse and It’s not like the country
has been sitting idle, contrary to opposing political opinion. Companies have
ramped up the production of necessary masks, gowns, ventilators and
respirators, pharmaceutical companies are coming with faster testing materials,
potential treatments and trial of possible immunizations. And the preparations
made by the public are impressive with growing discipline. Consider that with
expectations of the worst and I’m looking for the glimmer of light, with cash
in hand. Let’s hope sooner rather than later.
