Real Recession Numbers Are Here: They Are Ugly

Labor market numbers are starting to come out. They are extremely bad. Let’s start with the March Challenger job cut announcements report. Keep in mind, the April report will likely be worse. Specifically, in March there were 222,288 new job cut announcements which was up huge from February’s 56,660. That’s the highest monthly total since January 2009 which had 241,749 cuts. 

There was a 267% increase from last year. We can expect the April report to show the most cuts in the history of this report. This report doesn’t include the 100s of thousands of workers who were furloughed. In Q1, there were 346,863 cuts which was up 82% from last year and the highest quarterly total since Q1 2009.

A senior VP of Challenger stated, “The virus has caused total whiplash for HR, hiring managers, and recruiters. The labor data for February showed a strong economy with a tight labor market. Companies were fighting for talent across industries. Now, millions of workers have filed for unemployment, companies have frozen hiring, and in many cases, cut operations or closed completely.” 

This pandemic caused 141,844 of the cuts in March. Hardest hit industry was entertainment/leisure which had 83,234 cuts. Autos had 11,991 cuts and services had 8,430. We can expect a huge burst in cuts in services this spring because the sector is being hit the hardest. Especially since it involves human to human contact.

There was a 57.6% increase in cuts in the eastern region year to date as it had 88,956 cuts in March. That’s more than the total in the first 3 months of 2019. New York had 30,873 cuts in March which is up from the 27,953 cuts in the first 3 months of 2019. 

Midwest saw the 2nd biggest spike as there were 37,809 cuts with year to date yearly growth of 116.5%. West was the worst hit which makes sense because California has been shut down for weeks. Texas might be the next hotspot, so look for weakness there in the April report. Yearly year to date growth in cuts in the West was 117.6% as there were 72,871 cuts. Finally, the South was up the least as it has had year to date growth of 41.3% and 22,652 cuts.

There also were a lot of hiring announcements because some industries such as groceries and online shopping have seen a big burst in demand. There were 824,610 hires announced. That’s more than the full year of hires in 2014 and 2015. COVID-19 caused 821,810 hires. Hires will likely fall and cuts will rise in April. 

Initial demand will wain as people buckle in for a shutdown that could last a couple of months. Most of the hires were in retail and transportation which had 462,010 and 302,000. Specifically, Instacart had 300,000 hires, Wal-Mart had 150,000 hires, Amazon had 100,000 hires, and both CVS and Dollar General had 50,000 hires each.

Record Jobless Claims: Double-Digit Unemployment Is Almost Here

Once again, we saw stocks rally on the same day a record jobless claims report came out. Negative economic data is already priced in. Only thing that can send stocks lower is if this recession lasts more than a few months. If we saw evidence that COVID-19 would last until 2021, stocks would easily fall another 20%. Specifically, claims in the week of March 21st were revised from 3.283 million to 3.307 million.

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This week’s report for the week of March 28th was a disaster of epic proportions. There were 6.648 million claims which beat estimates for 3.35 million. The highest estimate was 6.5 million. That was deadly accurate. As you can see from the chart above, there have been about 10 million claims in 2 weeks. The economy only lost 8.6 million jobs in the entire 2008 financial crisis. 

It’s actually good news claims were up because it means people are getting the help from the government they need. With the extra $600, some are seeing a pay increase. In February, there were 5.787 million people unemployed as the unemployment rate was 3.5%. That number increased 9.955 million in the past 2 weeks which is a 172% increase. 

If the unemployment rate increases by that much, it would be at 9.5%. Peak last recession was 10% and the peak since the Great Depression was 10.8% in 1982. This April report will shatter that rate because we still have 2 more weeks of data that will go into that report.

Very Weak ISM Manufacturing Report

ISM manufacturing PMI report fell 1 point to 49.1 which is consistent with a GDP growth rate of 1.8%. However, this wasn’t a good report. It was lifted by the supplier deliveries segment which was up 7.7 points to 65. As you can see from the chart below, the new orders index fell to the lowest level since the last recession. It fell 7.6 points to 42.2 which is near the 1990 and 2001 recessionary troughs already. And it will be challenging the 2008 trough in the April report.

In the comments section 6 of 10 firms mentioned COVID-19. A plastics and rubber firm stated, “All North American manufacturing plants have ceased operations or drastically scaled back as a result of customer plant closings and other responses to COVID-19.” Prices index fell 8.5 points to 37.4 which is in tune with the Bloomberg commodities index falling to its lowest level since the mid-1970s.

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Conclusion

The labor market is currently in the worst position since the Great Depression. We just need the data to catch up to reality. Even the March job cuts report was terrible. It will get worse in April. Jobless claims report implies the unemployment rate is already at 9.5%. It will rise above 10% in the April report. 

Oxford Economics sees it getting to 12%. ISM manufacturing headline reading was fine, but the new orders index cratered. This spring it will likely fall much lower than the 1990 and 2001 troughs. It will challenge the 2008 trough.