Navigating the economic data of COVID-19
Economic data is the lifeblood of our financial markets. Nearly every conceivable aspect of employment, trade and commerce within our economy is ultimately dissected and quantified.
The goal is to provide a pure mathematical calculation – unbiased by human emotion – that quantifies the various components within our economy. But economic data, in and of itself, has its limitations. Now, nothing against those of you who are proudly holding up your abacus. I, too, often seek the warmth and comfort of hard economic data. But when we analyze these bits and pieces of mathematical economic metrics, we must use human judgement to take that data and extrapolate a broader economic landscape.
Consider, for example, the latest initial jobless claims data reported each week by the U.S. Department of Labor. Initial jobless claims represent the number of persons who have filed for unemployment insurance for the first time. Two weeks ago, the number of initial jobless claims soared from a near 50-year low of 282,000 to an all-time record of 3.3 million. The previous record was 695,000 claims set in October 1982. On Thursday, the number of weekly jobless claims surged to 6.6 million.
Likewise, the Department of Labor’s monthly employment reports for January and February combined for a monstrous 546,000 new jobs with the national unemployment rate falling to a 50-year low of 3.5% But on Friday, March’s employment report showed a loss of 701,000 jobs while the unemployment rate spiked to 4.4%. It was the first monthly job loss for the U.S. economy since September 2010. Unfortunately, in the short-term, the employment data is expected to become much worse.
Obviously, the January and February employment data, along with most other economic data from this time period, has become immediately obsolete. The economic impact of the COVID-19 virus, driven by government mandates, has shut down entire swaths of the American economy. It will deliver a punishing short-term blow to the U.S. economy, including the labor market. In just one month, the American economy is now existing in an entirely different world.
Yes, the number of job losses and the unemployment rate have soared, but does this current data reflect the true state of the U.S. labor market? Or, as I contend, does it represent a more transitory state in the labor market caused by government mandates, where in two to three months people will be going back to work en mass again?
In other words, it’s not that the March and April data are inaccurate. But just like January and February, it represents a very brief snapshot of a highly volatile labor market. The April-June second quarter is expected to have the largest quarterly economic decline in American history. But as government mandates on citizens and businesses are eased, as the flood of once-dormant consumer and business dollars are unleashed on an open economy and as businesses begin to restart their operations, economic growth in the second half of the year is expected to sharply rebound. And months from now, the March and April employment data should become just as obsolete as the January and February data are today.
Without question, the economic data released over the upcoming months will be brutal. But to see the forest through the trees requires perspective. And unlike the stringent methodology used in creating data, perspective requires a very non-scientific balance between realizing the current COVID-19 economic impact while at the same time understanding the transient nature of this data.
Mark M. Grywacheski, Investment Advisor
Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets, or developments mentioned.
Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
