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Look forward at March 30, 2020 week: National employment numbers won’t reflect full brunt of pandemic impacts

A look forward at the March 30 week sees the end of the first quarter 2020 and the start of the second. As data accumulates about the impacts related to the pandemic, the economic outlook will be gloomy. Just how gloomy will need more time and facts. For the moment, the worst of the panic in equities markets seems to be past, but how soon and how much stocks will recover can’t be known. Credit markets are awash with liquidity from central banks and that should help tide businesses and individuals over in the present difficulties. The arrival of fiscal stimulus may also ease conditions. The Fed’s balance sheet total on Thursday at 16:30 ET is anticipated to continue to jump.

There’s less data for February and more for March in the week, although the March numbers reported won’t necessarily be inclusive of the entire month. Nonetheless, these will help clarify the picture.

The big number for the week will of course be the March Employment Situation at 8:30 ET on Friday. This may not look too bad in some respects. The survey week for March ended on Saturday, March 14. While widespread closures were taking place, most workers received a paycheck during the pay period before then, so it should not mean an outsized jump in the unemployment rate in the household survey for March. What is more likely to be a shock is just how quickly establishments stopped hiring and started cutting in March, although there may not be serious payroll declines yet outside of a few sectors like travel and events services. There may also be a precipitous drop in hours worked. In any case, whether tentative in signaling a downturn or outright grim, the report won’t be dismissed as a one-off due to a short-term special factor. More bad data will be anticipated for the April report at 8:30 ET on Friday, April 10.

The ADP National Employment Report for March at 8:15 ET on Wednesday should be consistent with the cessation of hiring and widespread layoffs among service providers and some goods providers. Construction may not feel the pinch quite yet as builders have commitments on properties yet to start and under construction. However, plunging oil prices will hit mining hard and manufacturing was losing its brief upturn as new orders dried up.

The Challenger report for March at 7:30 ET on Thursday could be eye-popping in terms of the escalation of layoff intentions. Many businesses are reluctant to lose their skilled workers in the near-term in hopes that efforts to control the spread of COVID-19 will be effective and allow activity to resume. Realistically, widespread plans for layoffs will be announced and going into effect. It is likely that the increase in March will be huge, but is also important to keep in mind that layoff intentions include not filling open positions, voluntary separations, and cuts scheduled to take place over a period of weeks or months. This is not to diminish that massive layoffs are taking place, but to keep the picture in proportion.

Initial jobless claims for the week ended March 28 at 8:30 ET on Thursday should reflect continued massive dislocations of workers in the wake of the pandemic and efforts to keep it from spreading. While the national unemployment rate out of the BLS may not climb in March, the data in the jobless claims report is weekly and measures a different pool of workers – those eligible for benefits. The insured rate of unemployment in the March 21 could see a huge increase from the 1.2% in place since May 2018 as the rolls of continuing unemployment absorb the influx of about 3 million initial claims from the prior week.

The Conference Board’s Consumer Confidence Index for March at 10:00 ET on Tuesday is poised to fall sharply from the 103.7 in February and 130.4 in January. While consumers’ confidence in the present and near future was long buoyed by the strength in the labor market, that optimism probably took a heavy blow in March, perhaps enough to wipe out the elevated readings of the past couple of years as it did in the Consumer Sentiment Index.

The Dallas Fed’s Texas Manufacturing Outlook for March at 10:30 ET on Monday is the last of the District Bank surveys for the factory sector this month. The general business activity index was barely in expansion in February at 1.2 and is expected to return to contraction as it was in the previous four months. If the District sees a similar drop in new orders to the other regional surveys, the decline could be severe. In any case, it should add to the data for March that points to a drop in the ISM Manufacturing Index for March at 10:00 ET on Wednesday, April 1. The ISM index had registered scant expansion in January and February after a period of mild downturn in August-December 2019. Whatever upward momentum there was early this year has been sapped by the pandemic and efforts to contain it.

The Dallas Fed’s Texas Service Sector Outlook for March at 10:00 ET on Tuesday should echo the performance of the other District Bank surveys for non-manufacturing. The service sector had weathered the ups-and-downs of trade disputes and other recession risks reasonably well over the past couple of years. However, the arrival of COVID-19 has gutted activity for large segments of the service sector – particularly for travel, leisure, and hospitality – and is unmistakably visible in the regional data. The regional reports are expected to presage a downturn in the ISM Non-Manufacturing Index for March at 10:00 ET on Friday, April 2. The index may not quite fall into contraction after the 57.3 in February, but even if not, a sizeable deceleration will be consistent with distress in the sector.

The MNI-ISM Chicago Business Barometer for March at 9:45 ET on Tuesday encompasses activity in both manufacturing and services and will feel the showdown on both sides in its survey.

Sales of motor vehicles in March will be reported on Thursday and are anticipated to plunge as many consumers withdrew from unnecessary discretionary spending to preserve cash and prepare for a possible extended bout of idleness. Low interest rates and big discounts will not be enough to tempt buyers into big ticket purchases in the short term.

The NAR Pending Home Sales Index for February at 10:00 ET on Monday could signal the slowdown in purchases of existing homes in March. However, these are contracts signed, not closed. As such, February may see another good month, although it should decline after the 5.2% increase in January to 108.8. Even if strong, I would anticipate a number of these contracts will fall through in March as consumers decide not to buy and/or lenders see issuing the mortgage as too risky.

The numbers on spending on new construction in February at 10:00 ET on Wednesday may also not capture the slowdowns associated with measures to contain the pandemic. Residential construction is likely to remain strong even as private nonresidential building is put on hold.

Data on factory orders in February at 10:00 ET on Thursday will include the already-reported up 1.2% for durables. Nondurables are likely to be pulled down by petroleum prices and will moderate any increase. The main importance of this report will be how it shapes expectations for growth in the first quarter 2020 but until the March data is made available any good news will be read with caution.

International trade in goods and services for January at 8:30 ET on Thursday will update the advance number for trade in goods only and add in the services surplus. The impact of the pandemic will be obvious in both the decline in imports as goods were simply not available to bring into the US and exports where new orders fell as activity slowed around the globe. Early Nowcasts for first quarter GDP are widely acknowledging that the available numbers are resulting in estimates that are not expected to hold up, although the quarter as a whole won’t be as weak as what is probable for the second quarter.




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