• Even a Strong Jobs Report Doesn't Seem to Matter Much Now

    Even a Strong Jobs Report Doesn't Seem to Matter Much Now

    "A quick term check of the Fed's Beige Book out today: it mentions the coronavirus 48 times and 9 times says COVID-19. Together that's more times than the term labor (51 times) or employment (55) and poor inflation only appears 12 times. It's a different world out here folks."

    - Tara Sinclair, associate professor at George Washington University

    We promise that we won’t mention the virus as many times as the Beige Book. We’ll try, at least.
    But what else is there to talk about? The labor market report came out on Friday (more on that later) and beat expectations by nearly 100,000 jobs, and the bond market responded with one of the biggest rallies in history, driving the rate for 10-year Treasury bonds below 0.70% at one point.

    It pains us to say it, but the data doesn’t seem to matter much right now. Markets remained volatile in assessing the barrage of news on the illness, weighed against fiscal and monetary policy responses. The news is dizzying, so hopefully we can provide a little bit of clarity.

    The coronavirus is unique in that it impacts both sides of the equation for economic equilibrium, a shock to supply and demand. We love symmetry, so we thought we’d separate the two in this note.

    The supply shock begins in China, where manufacturers essentially took a month off. The capacity rates across sectors have been astounding, with Bloomberg reporting only 50% production compared to the potential in the middle of February, which rose to 60-70% by the end of the month.

    This was followed by a Purchasing Managers' Index tally for Chinese manufacturing at 35.7 (levels above 50 indicate growth), worse than even 2008’s low.

    • March 10, 2020