There Have Actually Been Some Jobs Saved, Only In Place Of Recovery

The ISM reported a small decline in its manufacturing PMI yesterday. The index had moved up to 59.3 for the month of October 2020 in what had been its highest since September 2018. For November, the setback was nearly two points, bringing the headline down to an estimate of 57.5.

At that level, it really wasn’t any different from where it had been at its multi-year high the month before. Neither are indicative of any sort of “V” shaped recovery, or any shaped recovery.

Rebound, yes, but that’s very different.

That point may have been best described by the key subcomponent most responsible for the index’s top-level decline. The manufacturing employment estimate fell back below 50 yet again. In fact, it had been above that level only once (October) since July 2019. The manufacturing sector, seriously struggling long before COVID, appears to be caught up in the same imbalances unfavorable to getting workers back on their feet even during the reopening frenzy.

Not enough work because rebound doesn’t necessarily mean recovery. In many cases, as we’ve seen since 2008, it merely means lack of further contraction at this moment.

Not just manufacturers, it might at first seem to be a glaring disconnect between other measures of the economic rebound, including mainstream interpretations of this ISM headline. But a relatively slow increase off a very low trough, as in earlier this year, isn’t the sort of economic recovery trend which would produce a robust labor market comeback.

On the contrary, if businesses perceive a lackluster upturn, as these PMI numbers actually suggest, then they will continue to be cautious especially when it comes to their greatest cost component (and liquidity risk) – just as the slowdown in all the employment data demonstrates (save the unemployment rate which is once more caught up in the participation problem’s apparent second act).

And it doesn’t really matter what “stimulus” has been unleashed along the way. Late last month, the Bureau of Economic Analysis (BEA) further proved the lack of stimulation in the massive government subsidies which have been paid out since the CARES Act was passed in late March. The effect in economic accounting, as in reality, was to make things seem better than they really are.

In this case, literal jobs saved for once. Saved for what, though?

This is not the same thing as recovery. In its second estimate for Q3 GDP, the BEA also provides the first set of estimates for corporate profits within the US economy. In some classifications, these absolutely surged, skyrocketed; and I don’t just mean from Q2 to Q3. In the case of after-tax corporate profits (not including inventory valuations and deductions for amortized capital expenditures), the estimated level in Q3 2020 was a whopping 21% better than it had been in Q3 2019.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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