The bad, the bad, and the ugly

The bad…

Jobless claims, which have been coming in around 200k just a month ago, have been in the millions in the last two weeks in March. Jobless claims for the last week in March came in at 6.65m, after a 3.34m number for the week prior. This implies a 10% unemployment rate, up significantly from the record-low 3.5% we saw in February. Economists are predicting more than 25m Americans could lose their jobs in the next few months. 

Moral of the story: 10m people have filed unemployment in just two weeks and I don’t think things are going to get much better anytime soon. Just in these two weeks, we have exceeded the peak number of people who collected unemployment benefits during the last recession – that was 6.6m at the *tail end* of the recession. We’re *starting* with numbers above that this time around. 

The bad…

Shocking zero people, manufacturing fell back into contractionary territory in March. Manufacturers started feeling the pain of the coronavirus’ impact on the economy at the end of the month as new orders and employment both fell to the lowest levels since the end of the last recession. While some consumer goods manufacturers should remain resilient (think pharmaceuticals, packaged foods, toilet paper, etc.), most manufacturing sectors should continue to see troubled times ahead. 

Moral of the story: While some manufacturers have had to shut down all together, others aren’t able to get the raw materials they need, and others are seeing productivity fall by as much as 30%. The situation in the rust belt is going to get pretty dismal in the upcoming weeks.

And the ugly. 

They were unfortunately so late to the game, but the Federal government has finally started showing some much-needed leadership in handling this situation and there were a couple noteworthy developments out of Washington this week. After the passing of the $2T Coronavirus Aid, Relief, and Economic Security (CARES) Act. Anyone know whose job it is to come up with these names? The acronyms always work so well. Anyway, this week, Trump spoke to Russia and Saudi Arabia on being mature and playing nice in the oil markets. Science was actually taken into consideration and Trump called for an extension of the shutdown until the end of April. He acknowledged the next two weeks are going to be “very, very painful.”

Moral of the story: You know how there are different phases of grief? I feel like we’re going through something similar with the coronavirus. The first phase was the acceptance of a virus spreading uncontrollably across the globe. Stocks reacted quite poorly, to say the least. The second phase was around a policy response. Stocks reacted quite well, they’ve rebounded double digits from the lows we experienced last week. We’re just now entering the third phase – where economic data actually starts to reflect the carnage created by this virus. We could start retesting the lows again in April if economic data comes through worse than expected, which I think could very well happen.