A look forward at the March 2 week anticipates a run of upbeat data for the labor market, further movement of the factory sector out of its recent downturn, and service sector conditions holding on to their modest-to-moderate expansion. However, all this is going to have to be read in the context of concerns about the spread of COVID-19 and its impact on the global economy. Equities have reacted – and perhaps overreacted – to reports of what is proving to be a pandemic of a new and serious virus. In the end this may prove to be a correction of an overvalued market. However, it also is a response to tangible events like large-scale quarantines in major economies that will disrupt supply chains without a good sense of when precautions will allow more normal functioning. Markets do not like uncertainty and there are many, many questions about the outbreak and governments’ responses. Chair Jerome Powell’s statement released on Friday, February 28 at 14:00 ET may have some effect in restoring confidence and calm. See the “Comment: Fed Chair Powell issues statement on ‘evolving risks’ to economic activity” from February 28.
Note: As of Monday, March 9, data reports from the Labor and Commerce Departments will be released directly to the public on the departments’ respective websites. This is a change from the March 1 deadline that was previously announced. It is a sensible delay given the data calendar which would not present a real-time, real-life test of the new delivery mechanisms until Employment Friday. See the February 29 “On the radar: End of press data lock-ups delayed until after the March 6 Employment Situation Release”.
The presence of these questions may be felt in the next edition of the Fed’s Beige Book at 14:00 ET on Wednesday. As a compilation of anecdotal evidence about conditions in the economy, it may be possible to get a better read on what is particularly concerning to businesses and how they are handling the situation. I would anticipate that the 12 Districts will report growth across-the-board at present, but there may be signs of greater uncertainty about the near-term outlook.
The February reports on the labor market should reflect the Fed policymakers’ contention that the US economy is in a “good place”. The Employment Situation at 8:30 ET on Friday is expected to show that payrolls continued to gain at a pace more than able to absorb new workers coming into the labor market, although not at the hectic up 225,000 of January. The unemployment rate should remain at 50-year lows similar to the 3.6% rate in January. Renewed activity in manufacturing could help raise payrolls for the goods-producing sector and the robust housing market should keep hiring up for construction even during the depths of winter. Restructuring in the retail and technology sectors could keep services payrolls down somewhat, but should not change the overall picture of robust hiring. Businesses may also have had to increase compensation again to meet mandated changes in minimum wages as well as up the wages for workers on the low end of the pay scale to retain them.
The ADP National Employment Report at 8:15 ET on Wednesday is also unlikely to match the exceptional increase of 291,000 in January but another month of respectable gains is expected. Challenger numbers on layoff intentions at 7:30 ET on Thursday should decline sharply from the upswing to 67,735 in January that included a couple of one-time large scale intentions. Overall businesses are holding on to their experienced workers where they can. This should be reinforced in the levels of initial jobless claims at 8:30 ET on Thursday which have rarely straying from the low 200,000’s in recent months and the insured rate of unemployment which has only twice budged – downward – from the tight 1.2% rate since May 2018.
It remains to be seen if the impacts of the coronavirus outbreak elsewhere have a negative impact on the recent recovery in the US manufacturing sector. At least for February, the ISM Manufacturing Index at 10:00 ET on Monday is expected to remain above the 50-mark for a second month in a row with an uptick in the pace of expansion which would mean the downturn was relatively short and shallow over the August-December 2019 period. The ISM Non-Manufacturing Index at 10:00 ET on Wednesday should be of a piece with the recent trend. The service sector has exhibited at least modest expansion since the start of the recovery and there is no reason to expect anything else for February. Of note in each report will be the tone and content of respondents’ comments as to whether concerns about the economic outlook will intensify further, or if they merely confirm worries already manifested in the stock market plunge and flight-to-safety trades.
New orders for all factory goods in January at 10:00 ET on Thursday will combine declines in the dollar value of nondurables orders – mainly on petroleum – with a lackluster performance for durables – which was mainly in the moribund aircraft component. Durables were already reported down 0.2% for January, but excluding transportation were up 0.9%.
The data on international trade in goods and services for January at 8:30 ET on Friday will get a bit lost behind the employment numbers. However, this will update the advance data on trade in goods and add in services, and help shape up expectations for growth in the first quarter 2020. The same can be said for the numbers of wholesale trade for January at 10:00 ET on Friday, and the inventory component in the factory orders report on Thursday.
Sales of new motor vehicles for February on Tuesday will also add to what is expected for consumer spending in the first quarter. Autodealers usually price and discount aggressively in February to compensate for a short selling month.
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