Written by: Tim Benzel
We noted in our market commentary last week that the full extent of the Covid-19 induced economic weakness had yet to make its way through to economic data releases, but that would soon be changing. As expected, Friday’s nonfarm payroll report, which is typically viewed as the marquee economic statistic each month, gave us a clear picture into where things stand. During April, more than 20 million jobs were lost in the U.S., a record, and the unemployment rate rose to 14.7%. These are sobering numbers considering that just a few months ago the unemployment rate stood at 3.5%, a 50-year low. Despite this datapoint, as well as others that have been released in recent days that illustrate the severity of the downturn, the financial market reaction was muted.
A muted reaction to weak economic data has been the norm as of late as investors appear to be looking past the short-term impacts of the virus and focusing on late 2020 and 2021. We believe this reaction is also being driven by the extraordinary fiscal and monetary policies that have been enacted in recent weeks, with additional stimulus being discussed.
As stay-at-home orders are lifted and economies begin to gradually reopen, we believe the next several weeks will be key. In early June we will be able to assess the medical impact opening decisions will have had and whether we can continue along the normalization path. Should the number of new cases continue along the current trajectory, we expect economic normalization to continue. Should cases spike however, policymakers will have a difficult decision to make - continue with the reopening despite adverse medical consequences or return to lockdown with negative economic and financial market consequences. Stay tuned.
Source: BLS, Bloomberg, 5/8/2020