HIGHLIGHTS OF THE WEEK
- U.S. stock markets recorded their worst performance since the financial crisis in the first quarter, with the S&P 500 and the Dow Jones falling 20% and 23%, respectively.
- Confirmed coronavirus cases now stand in excess of one million globally and have breached the 200k mark in the U.S. For context, there are now more confirmed COVID-19 cases in the state of New York alone than in all of China.
- The economy lost 701k jobs and the unemployment rate jumped to 4.4% in March. The data likely understate the extent of the crisis. The back-to-back record surges in weekly jobless claims, which topped 6.6 million last week, have set the stage for employment numbers to considerably worsen in April.
In the Eye of the Storm
Following the worst performance since the financial crisis in the first quarter – the S&P 500 and the Dow Jones Index fell 20% and 23%, respectively – investors were looking for a better start to the second. Markets entered the week making headway, but sentiment soured midweek on warnings about the toll of the pandemic. Hopes for a truce in the oil price war between Russia and Saudi Arabia later helped brighten the mood and drove both oil and equity indexes higher, but the stock market gains were not to last, with grimmer-than-expected employment numbers weighing on sentiment Friday.
On a global scale, the coronavirus outbreak has yet to show any signs of slowing down. This week saw the largest single-day increase in new confirmed cases with over 80,000 cases added on Thursday. The number of confirmed cases now stands in excess of 1,000,000 worldwide, while fatalities have breached 50,000. On the domestic front, the U.S. continues to see an exponential rise in new cases and has become the global epicenter of the pandemic. The nationwide case count has crossed the 200,000 mark this week, led by a continuous surge in the state of New York which has now surpassed China’s total number of cases (Chart 1).
The rapid escalation in coronavirus cases is increasingly pushing state and local authorities to implement restrictive measures. As of Friday, at least thirty-eight states and D.C. have moved to implement stay-at-home orders, with Florida and Georgia among the latest to join the chorus. With large swaths of the American economy at a standstill, glimpses of the virus’ economic toll have started to come through in data for the month of March released this week.
The ISM Manufacturing Index fell into contractionary territory at 49.1, while the Non-Manufacturing Index dipped to 52.5 from 57.3 in the month prior. The non-manufacturing survey was artificially held up by a sharp increase in supplier-orders. But, rather than signaling strong demand, this was an indication of supply-disruptions related to the virus. Other sub-indexes fell in the month. Similarly, vehicle sales plunged 32% month/month. Employment data showed the economy lost 701,000 non-farm payrolls. Meanwhile, the unemployment rate rose to 4.4%, marking its largest monthly increase since 1975 (Chart 2).
As eye-opening as they are, these early readings still heavily understate the extent of the current crisis. In fact, jobless claims rose to unprecedented highs for the second straight week, with 6.6 million people applying for unemployment benefits in the week that ended on March 28th. These levels of claims, if maintained through the month of April, will push the monthly unemployment rate well into the double digits (see commentary).
On the bright side, the response from policymakers has come in spade in recent weeks. It ranges from rate cuts to near-zero and a slew of emergency lending programs from the Fed, to a historical $2.2 trillion fiscal package which Congress enacted last Friday. More assistance, particularly for state and local governments at the forefront of the response effort is likely to come in the weeks ahead. This is needed as state and local governments are seeing virus related expenses surge at the same time that revenues are plummeting.
Johary Razafindratsita, Economist | 416-430-7126
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