By Kevin Kastner
WASHINGTON (MaceNews) – Many of the March and April U.S. data releases to this point have been worse than even the most pessimistic expectations. With that rosy thought in mind, markets and analysts will prepare for an extremely disappointing April employment report next Friday.
The March employment report’s survey week fell before the shutdown, pushing most of COVID impact into the April report.
Forecasts suggest that a subtraction of 20 million workers from payrolls is not out of the question given the level of unemployment filings since the COVID-19 related business shutdowns began. Payrolls fell by only 701,000 in March, usually an eye-popping figure except in circumstances like this.
To put that all in prospective, the largest one-month decline during the Great Recession was 800,000 jobs and the total decline in payrolls for the two-year period from February 2008 to February 2010 was 8.7 million.
Before settling on their final employment forecasts, analysts will see what ADP’s Wednesday payrolls report and Thursday morning’s Challenger layoffs data show. Both should confirm the severity of the April pullback.
While there is no doubt that payrolls will rebound at the end of this crisis, it will take several months to rebuild from just the April decline. The good news is that the May report may not look as bad after the April data set an exceptionally low bar.
In addition to the expected historic drop in payrolls, economists look for a 15% unemployment rate, up from 4.4% in March and well ahead of the 10% peak during the Great Recession. Some analysts are even looking for as high as 20%.
Hours worked should see a drop-off in April, except for essential services such as grocery stores and medical care where workers were called to put in extra time.
However, many businesses that could turn to telework did and others, like restaurants, cut staff but kept some workers on full-time to facilitate customer demand for take out and delivery. This could soften the blow to hours worked somewhat.
Hourly earnings should also decline due to the shutdowns. Some businesses may have sought to temporarily lower wages for all their workers rather than cutting staff.
At the same time, though, other businesses probably had to keep wages at normal levels for the workers they were able to hold onto. There are media reports of some hourly workers opting for unemployment pay, with the additional $600 per week contributed by the federal government stimulus plan, rather than their lower normal pay.
In other data, factory new orders are expected to post a huge March decline when they are released on Monday, reflecting a 14.4% decline in durable goods orders and a price-related plunge in nondurables goods orders.
The data will also show lower levels of shipments and unfilled orders and an increase in inventories as factory activity of nonessential businesses bottomed out.
The advance estimate of March wholesale inventories showed a 1.0% decline, which is not likely to be revised significantly when the full report is released on Friday. After the factory and wholesale data are released, early estimates for business inventories and sales can be calculated.
Tuesday morning’s release of the international trade gap for March is preceded by the advance goods trade report. Imports, and particularly exports, fell sharply on reduced activity and partially closed borders in the month, narrowing the goods gap.
The final services estimate from Markit and the nonmanufacturing ISM data will be released Tuesday and are expected to confirm the contraction already seen in the regional data.
The growth in initial claims may have slowed further in the May 2 week, but the data released Thursday will show the level of new claims remained high. Continuing claims will continue to climb until they approach the 30 million total initial claims filed since mid-March.
First quarter productivity will be sharply lower, in line with the large reported contraction in GDP output that will more than offset a modest decline in hours worked. Unit labor costs should rise as a result.
The U.S. Treasury will conduct its quarterly refunding next week, which is usually a time when they announce any changes to the borrowing schedule. At the last quarterly refunding, on February 5, Treasury announced its intention to introduce a 20-year bond maturity in the first half of this year while holding other coupon sizes steady.
Since that meeting, there has been a substantial change in government spending due to the COVID-19 response. It will be interesting to see what comments Treasury makes regarding their fiscal response and any changes to their borrowing plans.
The first sign will come on Monday afternoon, when Treasury will announce its borrowing expectations for the second quarter. Previously, Treasury said it that it expected to paydown $56 billion in debt, a realistic outlook at the time when income taxes were still due by April 15 and fiscal spending was not expected to be needed to fight a pandemic.
With the tax date moved to July and the additional spending on COVID, expect a significant adjustment to that borrowing expectation.
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–Contact this reporter: kevin@macenews.com
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