The weekly macro review for w/c 4 May 2020 – Even though it was expected, the extremely large decline in employment and increase in unemployment in the US jobs report was still alarming. The initial and continuing unemployment claims data indicate that this is likely to continue.
The detail on unemployment is important. While unemployment increased substantially, the vast majority (87%) of those people identified as having lost jobs this month, were classified as “on temporary layoff” and expecting to be recalled to their jobs once restrictions are lifted. The pace of permanent job losses has so far been much smaller and is tracking well below that of the GFC levels. The dynamic between temporary and permanent layoff is one of the more important datapoints to watch in order to see if/when these jobs come back and how future employment expectations are changing.
Consumers remained more cautious regarding expenditure on larger items such as vehicles. Retail sales of vehicles in Apr (on a SAAR basis) continued to fall to new lows. Consumer credit also declined in Mar, led by a decline in revolving credit (credit cards). This fits with the income and outlays report from the prior week – while income declined as a result of job losses, the value of expenditure declined by a greater degree. Stimulus checks around mid-Apr are likely to show up as higher expenditure but it will worth noting the impact on “saving” (as measured by the income/expenditure report), and/or outstanding consumer credit.
The weaker demand in areas such as vehicles impacted factory orders and shipments in Mar. The overall decline in US factory shipments and orders was in line with the weaker PMI data from Mar. The decline in shipments and orders was led by transport equipment, as well as petroleum shipments. The largest impact on new orders was the -$16bn print in total orders for non-defense aircraft for the month (not the change, the total value) – which indicates that orders may have been cancelled. There were modest declines in orders and shipments across other industries, the exception was food manufacturing shipments.
Germany industrial production for Mar declined severely – led by manufacturing. The index of manufacturing production fell back to 2010 levels. This is consistent with the weak Mar PMI report. Only construction activity continued to grow. The Apr manufacturing PMI has indicated that manufacturing output in Germany has declined even further.
This week, the view of Apr activity was completed with the release of the services PMIs. The countries/regions covered here all recorded faster declines in activity in Apr. In many cases, the business activity index reached all-time lows. The exception was China. The China Caixin services activity index still indicated that activity contracted in Apr, but at a similar pace as in Mar. Underlying conditions appear mixed with new work declining and employment declining at an accelerated pace but some small improvements were recorded in the outlook.
There appears to be more news of various restrictions starting to be lifted as of early May. This could start to be reflected as improvements in activity levels next month (depending on the reference week for surveys).
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 11 May 2020 – The focus this week will be on US retail, industrial and sentiment data, including two May data releases and Q1 GDP for the UK, Europe, and Germany.
Important highlights for this week include –
US: the first data out for May will be the prelim University of Michigan consumer sentiment survey and the NY Empire State Manufacturing Survey. The NY Fed manufacturing survey reference week will likely be the first week of May, so there might be some small lift in activity. Last month, the general business conditions index in the survey fell 57pts to -78.2.
The advance retail sales for Apr will be released. Note that stimulus checks were sent starting mid-Apr.
Initial and continuing claims will remain a key focus. So far, over 33m new unemployment claims have been made over the last seven weeks. Weekly claims remain in the millions.
Finally, US industrial production for Apr will be released. The Apr PMI’s indicated severe declines in output were experienced.
Prelim Q1 GDP will be released for the UK and Germany. The more detailed Q1 Eurozone GDP will be released.
Aussie employment data for Apr will be released along with the Q1 wage price index and consumer and business sentiment for May.
More data out for China this week including retail sales, industrial production, CPI, and PPI for Apr. This will be an important marker to see how the Chinese economy is performing so far.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $35bn in Treasury Securities (last week $40bn, prior week $50bn) and approx. $25bn in MBS (last week $30bn and prior wk $40bn).
There will be one term repo operation this week. The new repo schedule will be release mid-week.
US Treasury issuance remains heavy amid increased fiscal spending. This week w/c 11 May, the US Treasury will settle approx. $528bn in ST Bills, Notes and Bonds raising approx. $157bn in new money for the week, still somewhat lower than in recent weeks. It is possible that additional Cash Management Bill’s will be added this week. Last week the US Treasury released its funding requirements for Q2 which totalled $2.999trillion in new money. So far this quarter, new money raised is $1.447 trillion.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
