How Many Times Will The Fed Cut Rates In 2020?

The monthly BLS labor report shows temporary help services employment has been down yearly for 13 straight months. The only good news is the easier comp helped yearly growth in January rise from -1.4% to -0.5%. There has never been a longer streak of negative yearly growth without the economy either going into a recession or coming out of one, but the data only starts in 1990, so it’s tough to draw conclusions that a recession is about to be here. The modest yearly declines certainly lend support to the possibility that a recession isn’t close. The positive thesis is helped by the lowness of jobless claims.

China Hasn’t Recovered

The growth in the number of new coronavirus cases in China has fallen, but economic activity hasn’t come close to fully recovering. Chinese car sales fell 92% in the first 2 weeks of February. As you can see from the chart below, the number of daily trips in passenger cars has fallen about 80% consistently from last year. The number of daily trips hasn’t recovered much.

Source: Capital Economics via Twitter @LizAnnSonders

It’s possible that the decision to quarantine citizens does more harm than good. We will see which approach is best soon enough because we had China do a quarantine, while Italy isn’t about to close its borders even though the number of cases is rising there. The prime minister of Italy stated, reintroducing Schengen borders to prevent the virus from spreading “is a draconian measure that does not meet the needs of Italian citizens in the field of containment of infection.”

Conclusion

The Fed will be pressured into cutting rates further in 2020 even though it previously stated it would wait to see the impact of its 2019 cuts before taking action. The coronavirus is pushing the number of rate cuts expected higher and earnings revisions lower. Mastercard and United Airlines updated investors on how they think the virus will impact their businesses. Temp employment is falling which is a bad sign for the economy. Chinese passenger traffic hasn’t recovered yet even though the growth in new coronavirus cases has slowed.

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