Friday, March 6, 2020

Pretty good payrolls

The good news contained in today's February payroll report was unfortunately eclipsed by the ongoing bad news of the Corona virus. February private sector jobs rose much more than expected (228K vs 160K), and prior months were revised strongly upwards. Job growth since last summer has almost doubled, strong evidence that the headwinds of Trump's tariff wars have sharply diminished. 

If, as seems likely, the Corona virus hits the old and infirm much harder than the young and healthy, this means the U.S. economy should be able get through this pandemic scare without lasting structural damage. This light-at-the-end-of-the-tunnel, coupled with today's second-highest-in-decades reading on the Vix index, was enough to move markets back from the edge of the abyss in the last half hour. 

Chart #1

At the weakest point in the current business cycle expansion, the 6-month annualized growth rate of private sector jobs (red line in Chart #1) fell to 1.16% last July. As of February '20, this measure of jobs growth had surged to 1.95%. Pretty good! Undoubtedly this number will decline in the months to come, but at least it shows that the U.S. went into the Corona virus storm with good forward momentum. 

Note also that focusing on private sector jobs growth is especially important this year, as public sector jobs begin to accelerate due to Census hiring. Census jobs add nothing to the underlying strength of the economy. Private sector jobs do.


Benjamin Cole said...

Hurray for Scott Grannis!

Yes, there were 1,100 crew members on the Diamond Princess and the vast majority did not even become ill, and not one died.

The crew members ate and lived in common quarters----that is they were not quarantined from other possibly ill crew members. They were held in a ship-prison for weeks in close quarters. It was a real-world experiment (all decent people revile using humans as guinea pigs, but what happened happened).

So, ordinary non-elderly adults are not at risk from coronavirus.

An hysterical media and clumsy government are what threaten the economy today.

Would that the mass media discover Scott Grannis....

Roy said...

"Census jobs add nothing to the underlying strength of the economy."

By providing jobs or extra hours to those who lack them it raises consumption in a market that is deficient in consumption. So, it does add something to the economy, at least temporarily.

steve said...

My son is the director of bioinformatics at a Cambridge, MA biotech firm. Computational biology is the study of biological data so studying the over 100,000 cases of Cvirus is in his wheelhouse. His take so far;

-it's true that China seems to have Cvirus under some control as the reports of new cases id dropping rapidly. It's also true that they have basically used martial law to control it, something the rest of the world probably won't do.

-to Scott's point, it's also true that Cvirus is particularly virulent for the old and/or sick. The under age 50 or so is relatively impervious. We do not know why. Consider this however; if you're 60 or older AND healthy your mortality rate is 5-7%, some 30 times worse that the common flu and if you're 80 and older, basically a death sentence.

-the US (read CDC) has done a pitiful job in getting the test kits out to those who need it. Literally they got the basic chemistry wrong. Inexcusable. The US is ill prepared and not taking the Cvirus seriously enough. Anyone who suggests that people should "go to work" is ignorant of basic biochemistry as the Cvirus will spread from even those who are asymptomatic to those who are more vulnerable.

-SEA will in all likelihood go on lockdown very soon. We have not seen the bottom by any means to the spread and impact of Cvirus and I suspect he bond market is right and the stock market has some catching up. Impossible to gauge the economic but it won't be insignificant.

-Scott is absolutely right about light at the end of the tunnel but it could be a Bernie Sanders tunnel and I suspect that is what the bond market is freaking out about.

John said...

It's the uncertainty, stupid. Cite the statistics about coronavirus all you like. How many of us have been tested? The stats are very rough. Make the case that the younger, more productive members of society will be spared and only the old and sick ones will die. The coronavirus could evolve into something even more virulent. Two strains have now been identified.

The idea that the markets are reacting to Bernie's election strikes me as the funniest. Would Bernie absolve Congress? Shut down all the courts? Eliminate state and local government?

What worries me is what is the investor class willing to do in its attempt to eliminate its biggest enemy: uncertainty?

Cabodog said...


I'm beginning to hear of anecdotal evidence of a slowdown. An excavation contractor friend of mine mentioned last night that in the last six months he's seen a slowdown; he's gone from employing 18, now down to 5.

Another friend is a freight broker; he's seen quite the dropoff in business (I believe his business is brokering LTL shipments).

Additionally, seeing several companies disbanding flight departments, with the jets being sold and pilots laid off.

Just rumblings, but similar (just opposite) of your animal-spirits posts of 2012 that predicted the rebound from the disastrous 2008 recession.

I am cautious at this time.

Scott Grannis said...

Cabodog: Re “I am cautious at this time.”” Well, nearly everyone is cautious these days. Very cautious! That’s why Treasury yields are so low.

I should add that I mistakenly called the bottom for the market in Nov or Dec 2008. In retrospect that was the inflection point, but the actual bottom took a few months to arrive. A few months later I said I thought the economy would hit bottom around mid-2009, and that turned out to be right. The market can bottom even as the news is getting worse.

Johnny Bee Dawg said...

Oil down 30% on Sunday. Dow probably not bottomed quite yet. Here comes the Fed

Scott Grannis said...

Oil now down "only" 20%. S&P futures down 3.5%. Tomorrow will be ugly. The Fed absolutely needs to keep up with the market and cut rates. Deflationary pressures are starting to erode credit markets, in what appears to be a min-replay of what happened in 2015-2016 as oil prices plunged from $100+ to $30. It's a "demand shock" as virus fears cause people to travel and consume less. Interest rate cuts can't fix this problem, but they do address the fact that the demand for "money" is intense and that is putting extreme downward pressure on short-term interest rates.

I suspect the Fed's next move will be another round of QE, the purpose of which will NOT be to "stimulate" but rather to accommodate the demand for money equivalents. QE transmogrifies notes and bonds into T-bill equivalents, and the latter are the ones subject to the most demand at times like today.

steve said...

Perhaps Saudi Arabia and Russia could have found a better moment to have a schoolyard fight?

The Cliff Claven of Finance said...

Lot's of hiring just in time for a business slowdown is NOT good news.

China, Italy and other nations are in a "flu recession" where commerce and production has been deliberately slowed / halted until the "flue fear" disappears.

Maybe for one month -- maybe a few months.

Ordinary strains of the flu kill far more people every winter, yet stock investors never cared.

I bought SVXY at 37.24 this morning -- the VIX level is ridiculous because of this media hyped "epidemic".

The mass media will focus on anything that could make Trump look bad, even inventing fake news ... while ignoring any real news that could make Joe "gaffe" Biden look bad.

randy said...

Steve - you probably already read this, but WSJ agrees with you:

"President Trump has defended Saudi leader Mohammed bin Salman despite his displays of bad judgment or worse. If the crown prince wants to return the favor, now would be the time amid the panic in oil markets after a price war broke out between former cartel partners Russia and Saudi Arabia. How about putting in a call, Mr. President?

The immediate cause for this chaos is a game of chicken between Riyadh and Moscow."

MBS is looking more like a jackass than the liberal savior pundits like Thomas Friedman portrayed him as. Not entirely unrelated, Friedman recently reflected more stupidity suggesting Sanders might announce AOC as ambassador for the UN to soothe the progressives. Someone pull the plug.