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Covid-19 : Why The Unemployment Crisis is Not Short Term

(Sat, 9 May 2020). The U.S. jobs report showed a decline of 20.5 million jobs in April while the unemployment rate rose to 14.7%. The “real” unemployment rate surged to 22.8%, some say more, which reflects the worst of the Great Depression. Many of those jobs are not returning for a long time; many others, never at all. The Dow Jones ignored the worst U.S. jobs report in history as if it were of no concern because investors hope the coronavirus crisis is here on a short-term stay.


All Investors Do Is Ignore
Some say the Dow has already discounted bad jobs reports. I say it has not even begun to factor them in fully. Investors are running on testosterone, and pretending these historically savage reports will quickly fade. The latest rise in unemployment is nothing new–it is old news that has mostly been denied. For example, the Dow initially began to recover because the crisis was supposed to go away in May. The number of new Covid-19 cases was supposed to be way down by now, and jobs were supposed to return. That was nonsense at the time, and it has been proven wrong now.

It’s unwise to simply ignore that strong possibility. Even Dr. Anthony Fauci says it is “inevitable” the virus will return in the fall, and it may not even go away in the summer. Instead of dropping when that reality became apparent, however, the Dow rose because investors chose to believe the coronacrisis has merely postponed its departure until June. After all, it’s hard to catch a flight out these days. The Dow embraced the horrid jobs report on Friday by shooting up 370 points by mid-morning.

It only took Credit Suisse Chief Economist James Sweeney one sentence to explicate what this says about the U.S. economy: “This might be the worst macroeconomic data report in U.S. history.“ The Dow shot up because investors are choosing to believe that unemployment will soon improve. But the unemployment rate will have to improve to be as good as it was before the coronacrisis to justify valuations that were already overpriced before the virus slaughtered American jobs.

Besides ignoring the worst job report in history, investors have chosen to ignore a full week of the worst earnings reports in history and the most dismal forward guidance on earnings. Forward expectations are so gloomy most companies are not giving any guidance, which is also historic. The Dow rose despite rapidly rising bankruptcies, rapidly falling corporate credit ratings, rising mortgage defaults, etc. based on hopes in a phantom vaccine that may not even be possible to achieve. If investors are going to tune out all of that as mere noise, what does the most giant flush of a jobs report in history matter? Just more noise that would spoil the party.


Bad Jobs Reports Will Not Be Temporary
Re-opening the economy is going to happen incrementally. Since New York started re-opening, the number of new coronavirus cases has begun creeping back up. Many communities have canceled all public events throughout the summer. That’s a lot of lost summer jobs. Theaters are not re-opening this summer. Sports events aren’t coming back this summer. All of those events help juice surrounding businesses like restaurants. Restaurants may find wary customers do not return in sufficient numbers to make it profitable to re-open. Others will go out of business before they’re allowed to re-open, as the re-opening rules vary from state to state.

Airlines aren’t going to snap back, nor are crowded hotels. Cruise ships won’t be bringing tourists into port this summer. All of that will result in more small businesses that just cannot weather all of this. They didn’t get any bailout relief because big businesses quickly sucked up all government funds, so they’ll close. Those jobs won’t be coming back. Many colleges are not planning to fully re-open even in the fall. That will be a job hit for college towns. With all that local tax revenue lost, governments will have to restructure to balance their budgets. That will result in new losses in government jobs.

 

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