Unemployment Doubles and Job Cuts Triple
Economic Report Monitor #7
April 2nd, 2020
It's been a week since the last jobless claims number and we're back again to assess the second round of damage. The new report saw new claims double from up 3.3 million the previous week to up 6.6 million this week. Stay-at-home orders have hit most of the country, and most non-essential businesses have been told to take a hiatus to encourage social distancing. Interestingly, this measure of employment that will guide initial observations of unemployment did little to affect equity markets which traded higher on the day. Since this data point is notably important in indicating a recession, some would assume it to be market moving. However with the COVID-19 outbreak stalling the economy, expectations have already been adjusted to account for the inflated numbers that the indicator will show due to the government ordering furloughed workers to use unemployment as a way to replace lost income for the time being. Jobless claims will probably be more impactful towards the end of the outbreak as the market looks to track how quickly a rebound occurs.
Challenger, Gray, and Christmas released their monthly report on job cuts for March to give another peek into the employment situation. Employers cut 222,288 jobs in March a 292% increase from the month before and 267% higher than a year ago. Over 140,000 of the cuts were caused by COVID-19. and as expected, the "non-essential" entertainment and leisure industry saw the most cuts at 83,234. The second-largest industry infected was the automotive industry which reported 11,191 COVID-19 cuts of their own. Technology companies saw a 482% increase in cuts in 2020 Q1 over 2019 Q1, a trend likely accelerated by the virus outbreak but beginning before. Despite the devastation in employment, there has been a large amount of hiring announced, over 800,000 new jobs, by companies expecting an increase in demand during the outbreak. More than two-thirds of the announcements came from companies that deliver groceries, Instacart (300,000), Walmart (150,000), and Amazon (100,000). It's likely these will mostly be temporary positions. Could the newly unemployed handle a short temporary structural shift in the labor market to fill the gap?
Up next, the Bureau of Economic Analysis reports on US international trade of goods and services in February. As expected, the February numbers are heavily affected by the lockdown in China which occurred in its early COVID-19 outbreak. The trade deficit fell -12.2%, down -$5.5 billion, as imports dropped more than exports. As expected travel exports saw the largest drop, down $1.3 billion. The largest imports impacted were those related to China: computers down -$1.4 billion, telecommunications equipment down -$0.6 billion, and computer accessories down -$0.5 billion. Consumer goods also decreased $1.1 billion. Overall, the deficit with China fell over 16%. With China supposedly experiencing a brisk rebound in manufacturing, the shrinking deficit could stabilize. However, it will depend on how US demand shifts during its COVID-19 reaction.
Another February figure with no reaction to the economic slowdown was released as the Census Bureau announced new factory orders data. After a slightly down month in January -0.5%, new orders were flat in February. Durable goods and nondurable goods cancelled each other out at 1.2% up and -1.2% down. Machinery lagged at -0.6% and primary metals were even lower at -1.0%. Transportation equipment carried, up 4.6%. Inventories fell slightly, down -0.4%, but it's unclear if it is a reaction to China's shutdown as new orders lagged for the last two months. Pharmaceuticals and medicines saw inventories draws of -1.2% in Jan and -1.0% in Feb which could be early reactions to COVID-19.
Finally, the EIA released its weekly report on natural gas storage. Stockpiles drew -19 Bcf as consumption looks to be unaltered by the COVID-19 outbreak. Historical comparisons remain oversupplied but unchanged in the near term as stockpiles are 77% higher than a year ago and 17% higher than the 5-year average. It will be interesting to note changes in underground storage during the lockdown months. Caixin reported that China consumed 7.8% less electricity in January and February compared to the year before. If the US sees a nationwide shutdown prolonged into the summer, there might be a similar trend that could have bearish implications in the natural gas market. On the other hand, US power consumption might be less affected since its industrial and manufacturing segment is smaller than China's. China's industrial power consumption fell 12% while its service power consumption fell only 3.1%.
April 2nd, 2020
It's been a week since the last jobless claims number and we're back again to assess the second round of damage. The new report saw new claims double from up 3.3 million the previous week to up 6.6 million this week. Stay-at-home orders have hit most of the country, and most non-essential businesses have been told to take a hiatus to encourage social distancing. Interestingly, this measure of employment that will guide initial observations of unemployment did little to affect equity markets which traded higher on the day. Since this data point is notably important in indicating a recession, some would assume it to be market moving. However with the COVID-19 outbreak stalling the economy, expectations have already been adjusted to account for the inflated numbers that the indicator will show due to the government ordering furloughed workers to use unemployment as a way to replace lost income for the time being. Jobless claims will probably be more impactful towards the end of the outbreak as the market looks to track how quickly a rebound occurs.
Challenger, Gray, and Christmas released their monthly report on job cuts for March to give another peek into the employment situation. Employers cut 222,288 jobs in March a 292% increase from the month before and 267% higher than a year ago. Over 140,000 of the cuts were caused by COVID-19. and as expected, the "non-essential" entertainment and leisure industry saw the most cuts at 83,234. The second-largest industry infected was the automotive industry which reported 11,191 COVID-19 cuts of their own. Technology companies saw a 482% increase in cuts in 2020 Q1 over 2019 Q1, a trend likely accelerated by the virus outbreak but beginning before. Despite the devastation in employment, there has been a large amount of hiring announced, over 800,000 new jobs, by companies expecting an increase in demand during the outbreak. More than two-thirds of the announcements came from companies that deliver groceries, Instacart (300,000), Walmart (150,000), and Amazon (100,000). It's likely these will mostly be temporary positions. Could the newly unemployed handle a short temporary structural shift in the labor market to fill the gap?
Up next, the Bureau of Economic Analysis reports on US international trade of goods and services in February. As expected, the February numbers are heavily affected by the lockdown in China which occurred in its early COVID-19 outbreak. The trade deficit fell -12.2%, down -$5.5 billion, as imports dropped more than exports. As expected travel exports saw the largest drop, down $1.3 billion. The largest imports impacted were those related to China: computers down -$1.4 billion, telecommunications equipment down -$0.6 billion, and computer accessories down -$0.5 billion. Consumer goods also decreased $1.1 billion. Overall, the deficit with China fell over 16%. With China supposedly experiencing a brisk rebound in manufacturing, the shrinking deficit could stabilize. However, it will depend on how US demand shifts during its COVID-19 reaction.
Another February figure with no reaction to the economic slowdown was released as the Census Bureau announced new factory orders data. After a slightly down month in January -0.5%, new orders were flat in February. Durable goods and nondurable goods cancelled each other out at 1.2% up and -1.2% down. Machinery lagged at -0.6% and primary metals were even lower at -1.0%. Transportation equipment carried, up 4.6%. Inventories fell slightly, down -0.4%, but it's unclear if it is a reaction to China's shutdown as new orders lagged for the last two months. Pharmaceuticals and medicines saw inventories draws of -1.2% in Jan and -1.0% in Feb which could be early reactions to COVID-19.
Finally, the EIA released its weekly report on natural gas storage. Stockpiles drew -19 Bcf as consumption looks to be unaltered by the COVID-19 outbreak. Historical comparisons remain oversupplied but unchanged in the near term as stockpiles are 77% higher than a year ago and 17% higher than the 5-year average. It will be interesting to note changes in underground storage during the lockdown months. Caixin reported that China consumed 7.8% less electricity in January and February compared to the year before. If the US sees a nationwide shutdown prolonged into the summer, there might be a similar trend that could have bearish implications in the natural gas market. On the other hand, US power consumption might be less affected since its industrial and manufacturing segment is smaller than China's. China's industrial power consumption fell 12% while its service power consumption fell only 3.1%.
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