Thursday, May 7, 2020
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Huge job losses have been obvious and investors care about what they don’t know.
Tens of millions of Americans have lost their jobs in the last six weeks.
Wednesday’s data from ADP confirms this.
On Wednesday, the firm’s private payrolls report for April revealed that 20.24 million jobs were lost last month. In a single month, more than double the number of workers who lost their job during the entire financial crisis found themselves out of work.
Ahu Yildirmaz, co-head of the ADP Research Institute, said Wednesday job losses of this scale are “unprecedented.” That word greatly undersells the scope of this labor market dislocation.
But for investors, this report merely explicates what was already well known — the employment situation in the U.S. is grisly. As Ian Shepherdson, an economist at Pantheon Macroeconomics, said of this report in an email Wednesday: “Terrible, but not really news.”
Later this morning, the weekly report on initial jobless claims is expected to show 3 million workers filed for unemployment insurance. This would bring post-COVID claims filings to around 30 million, a rough proxy for how many workers have been laid off or furloughed since this crisis began.
And on Friday, we’ll get the government’s official unemployment figures for April, which is forecast to show some 21.25 million jobs were lost last month with the unemployment rate jumping from 4.4% to an eye-watering 16%.
The numbers are so big and so terrible as to be almost incomprehensible.
But that stock futures barely reacted to Wednesday’s employment number is not a surprise.
It is quite clearly documented that employment has been collapsing in the U.S. and that an unprecedented surge in unemployment is coming. In fact, is already here.
What jobs data this week is telling us, then, is what we already knew. In the weeks and months ahead a closer discussion of which sectors are most impacted, which income levels are hit hardest, and how long will mass unemployment endure will surely become crucial parts of the market’s outlook.
But if there is one area of the economic conversation where the damage is fairly well understood it is the labor market. And what moves the stock market is what is unknown.
As we discussed Wednesday, an eternal investing debate is what is “price in” to the market, which assumptions are being reflected by current asset prices. Right now, that debate centers on whether the virus will spread more or less aggressively as states move to loosen restrictions on businesses and citizens.
The market is asking investors to place a bet on whether “re-opening” the economy goes well or goes poorly. Strategists view the recent rally in stocks a sign many investors believe there will not be major hiccups through the summer months.
Whether this comes to pass remains to be seen. You are free to hold a view on this or not; in time the answer will be revealed to all of us.
And so while it seems — and indeed, it is — crass to view the worst labor market data in modern American history as a non-event for the market, it is to some extent to be expected.
We know the data are going to be bad. We don’t know what these data will mean long term.
As Federal Reserve Chair Jerome Powell said last week, “The forceful measures that we as a country are taking to control the spread of the virus have brought much of the economy to an abrupt halt... When the spread of the virus is under control, businesses will reopen, and people will come back to work.”
And “when” is what we don’t know.
What to watch today
8:30 a.m. ET: Initial Jobless Claims, week ended May 2 (3 million expected, 3.839 million prior)
8:30 a.m. ET: Continuing Claims, week ended April 25 (19.6 million expected, 17.99 million prior)
10 a.m. ET: Bloomberg Consumer Comfort, week ending May 3 (39.5 prior)
7:05 a.m. ET: Bristol-Myers Squibb (BMY) is expected to report earnings of $1.48 per share on $9.93 billion in revenue
4 p.m. ET: Roku (ROKU) is expected to report a loss of 45 cents per share on $296.58 million in revenue
4:05 p.m. ET: Uber (UBER) is expected to report a loss of 79 cents per share on $3.34 billion in revenue
Lyft Q1 2020 revenue sees 23% growth despite coronavirus [Yahoo Finance]
Tesla billionaire Elon Musk set for $720 million pay day [Yahoo Finance UK]