COVID-19 doing a number on economic data: Jobless claims soar

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As the Federal Reserve continues trying to keep markets liquid as the stock market sinks, economic data are showing the effects of COVID-19.

Initial jobless claims soared 70,000 in the week ended March 14 to 281,000, the highest reading since the week ended Sept. 2, 2017, the Labor Department said Thursday.

“The increase in initial claims are clearly attributable to impacts from the COVID-19 virus,” according to the report, as some states specifically mentioned layoffs related to the coronavirus.

The 211,000 claims reported the prior week were unchanged.

Economists polled by IFR Markets expected a rise to 218,000.

“We estimate that the private service sectors most vulnerable to COVID-19 had 26 million persons on payrolls in February, or 17% of total nonfarm payrolls,” said Berenberg Capital Markets U.S. Economist Roiana Reid. “The leisure and hospitality sector alone accounted for 17 million of these jobs. Major U.S. automakers have already announced factory closures through the end of March, and our hunch is that other manufacturers will soon follow suit. Manufacturing payrolls totaled 13 million in February.”

And the March non-farm payrolls figure, to be reported April 3, will also miss those laid off after March 12, when “the U.S. ramped up” precautions to slow the disease’s spread, Reid said. The employment report “will not fully reflect the deterioration in labor market conditions,” she said. The April report “will show the bulk of the job losses, assuming that this stoppage in economic activity lasts through at least the first half of April.”

The job losses will cut income and confidence and consumers will shun non-essential goods, Reid continued. “We expect continued declines in business production and capital spending to constrain the turnaround in labor markets even after the economy reopens. This massive shock is destabilizing what had been a robust labor market through February.”

The Federal Reserve is on high alert and continued to act. Thursday morning, the Fed said it arranged temporary swap lines with nine other central banks — Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden) — “to help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad,” the Fed said in a release

Late Wednesday, the Fed announced a program to support money market funds. “Through the establishment of a Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds,” the Fed said.

Leading indicators
The leading economic index gained 0.1% in February to 112.1 (2016=100), after rising 0.7% in January and dropping 0.3% in December.

The coincident index rose 0.3% in the month after a 0.1% gain in January and a flat read in December. The lagging index rose 0.4% in February after an unchanged reading in January and a 0.1% dip in December.

“The U.S. LEI rose slightly in February, but it doesn’t reflect the impact of the COVID-19 pandemic which began to hit the U.S. economy in full by early March,” said Ataman Ozyildirim, senior director of Economic Research at the Conference Board. “The slight gain in February came only from half of the LEI components. In particular, the recovery in manufacturing, which looked promising until February, will now be short-lived because of the disruption in global supply chains and falling demand.

Philly Fed
The Federal Reserve Bank of Philadelphia’s Business Outlook Survey showed “a significant weakening in regional manufacturing activity” in March, as “general activity, new orders, and shipments fell precipitously … coinciding with developments related to the coronavirus.”

The general business conditions index plunged to negative 12.7 in March from positive 36.7 in February, although the six months from now index fell to positive 35.3 from positive 45.4.

“The survey’s future indexes suggest that respondents expect declines to be short-lived,” the Bank said, “inasmuch as they continue to expect growth in manufacturing activity over a horizon of six months.”

Also Thursday, the Commerce Department said the current account deficit narrowed to $109.8 billion in the fourth quarter from $125.4 billion in the third quarter of 2019.

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