Friday Data Put Coronavirus Recession in a League of its Own

April 3, 2020

The U.S. monthly labor force survey for March could have been worse because of the release’s disclaimer that “the survey reference periods predated many coronavirus-related business and school closures that occurred in the second half of the month.” That being said, non-farm payroll employment plunged 701K, most since April 2009. A drop of 701,000 jobs is close to the six-month average decrease of 744K in the half year ending April 2009 (The largest drop in that run was 802K in March 2009). The U.S. labor force survey also reveals the largest month-on-month rise in the jobless rate (4.4% versus 3.5% in February) since January 1975. Analysts had been anticipating a 100K decline in jobs and unemployment of 3.8%. An alternative measure of joblessness that includes under-employment leaped 1.7 percentage points to 8.7%.

The dollar had already appreciated sharply overnight prior to the release of the U.S. monthly labor force survey figures, which also showed average hourly earnings rising 0.4% on month and 3.1% on year and a drop in labor market participation to 62.7% from 63.4%. Some 20 minutes after the jobs report, the dollar had netted gains since Thursday closing levels of 1.6% versus the euro, 1.5% vis-a-vis the peso, 1.3% against the Swiss franc, 1.2% relative to the yen, 1.1% versus sterling and 1.0% against both the Australian and New Zealand dollars.

Equity market performances in the Pacific Rim were mostly down, with losses of 2.6% in Singapore, 2.4% in India, 0.6% in China and 1.7% in Australia but an advance also of 2.0% in Indonesia. Taiwan observed a holiday, and Japan’s Nikkei netted no change. Share prices in Europe have dropped so far by 1.2% in Italy, 0.9% in the U.K., and 0.8% in France.

Ten-year sovereign debt yields continue to be very low but little changed from yesterday.

WTI crude oil has extended its rebound by 6.4% since Thursday’s close, and the price of gold is nearing $1,640 per ounce.

Prior to the U.S. release, investors learned of shocking declines in service-sector activity from a slew of purchasing managers surveys, each including a chart looking like someone dropping of El Capitan, a nearly 3000 foot vertical cliff in Yosemite Park. The descent of economic activity in the autumn of 2008 at least had some slope. The charts for last month are a straight drop, and the health and economic catastrophe is not sparing anyone this time.

Euroland’s services and composite purchasing managers indices in March were revised further downward to 26.4 and 29.7, both record lows in a data series going back to 1998. The drops were from February levels of 52.6 and 51.6. The four largest economies using the euro — Germany, France, Italy and Spain — each saw their individual service-sector and composite PMIs fall to record lows, and Ireland’s results were the worst in 131 months versus 26-month highs posted in February.

The British services PMI crashed from 53.2 in February to 34.5, weakest since that data series was begun in July of 1996. A composite British PMI of 36.0 was also at a record low in March.

Japan’s services PMI has declined from 51.0 in January to 46.8 in February and a 133-month low of 33.8 last month. The composite PMI reading of 36.3 is consistent with an annualized GDP contraction of 8%, but since this snapshot was taken before Japan felt the full brunt of Covid-19, the report strongly implies that second-quarter growth could be negative to the annualized extent of 10% or more.

The good news about China’s PMI releases today are that they were higher than February results. But at 43.0 for services and 46.7 for a composite of manufacturing and services, such signify the second worst readings in this 15-year-old data series. Only February’s 26.5 and 27.5 readings were lower.

Hong Kong‘s private PMI ticked up 1.8 index points to a 2-month high of 34.9 in March after recording an alltime low in February.

Singapore, Lebanon, Australia, South Africa, and Russia also had record low composite PMI scores of 33.3, 35.0, 39.4, 44.5, and 39.5 respectively.

Australia’s AIG-compiled construction PMI printed at 37.9 in March, down from a reading of 42.7 the month before.

On the central banking front, the People’s Bank of China has cut reserve requirements for mid- and small-sized banks by a full percentage point. And the National Bank of Kazakhstan’s policy rate has been reduced by 250 basis points to 9.5%. As recently as February, such had been hiked by 275 bps to resist depreciation of its currency.

In other data, retail sales in the euro area jumped 0.9% on month in February due to further hoarding of goods ahead of the pandemic. Sales were 3.0% greater than in February 2019.

Australian retail sales rose 0.5% in February, and due to the great distortions caused by the coronavirus and efforts to flatten the pandemic’s curve, officials temporarily suspended reporting year-on-year comparisons of this data series.

Retail sales in Singapore fell 8.9% on month and 8.6% on year (an 8-month low) in February.

Turkish CPI inflation slowed to a 4-month low of 11.86% in March, while PPI inflation in Turkey of 9.5% represents a 3-month low.

Spanish industrial production was 1.3% less in February than a year earlier.

The U.S. Institute of Supply Management’s non-manufacturing purchasing managers survey for March is due shortly.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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