Tomorrow morning, the Labor Department will report the official unemployment rate for April, and it will surely be one of the worst in US history. The jobless rate for March jumped from a 50-year low of 3.5% to 4.4%. For tomorrow’s report, the pre-report consensus is for a surge to 16% in April. Some forecasters say it will hit 18%-19%. Either way, it will be a record one-month jump.
The decline in nonfarm payrolls for April is likely to be about three times worse than the jobs lost over two years during the Great Recession. Automatic Data Processing (ADP) reported yesterday that 20.2 million jobs were lost last month alone. This, too, is a new record.
Whatever lost jobs number is reported tomorrow morning may be too low, unfortunately, because it will probably significantly understate the situation, given all the difficulties in surveying shuttered businesses. And because of the difficulty many newly unemployed workers have had trouble filing for unemployment insurance. So, tomorrow’s jobs number, however bad it is, could be revised even higher over the next month or two.
In addition to the unemployment rate, tomorrow’s jobs report will also include the much-watched Labor Force Participation Rate. The March jobs report showed the biggest drop in the participation rate since 1968 to 62.7%. The pre-report consensus for tomorrow’s report has the participation rate falling to around 59%, the worst in at least a half-century.
Let’s face it: April was the biggest one-month loss of jobs in US history. The question is: How much of this is already priced into the equity markets? Stocks as measured by the Dow Jones have rebounded significantly from the early April low. Veteran traders say that the stock market price on any given day is a reflection of all the available news at that time.
As I write this, it is widely anticipated that tomorrow’s jobs report will be terrible. Yet as of noon today, the Dow is up 350 points and back above 24,000. Yet we are to believe that tomorrow’s awful jobs report is already priced in, right? I wouldn’t bet on it! It would not surprise me if tomorrow’s report (depending on how bad it is) sparks a new downturn and a possible retest of the early April lows.
The bottom line is, tomorrow’s jobs report is likely to be the worst single economic report most of us have ever seen. Thinking about a bad report is one thing; actually seeing it is yet another. If it’s as bad as expected, it’s going to take some time to soak in, and I don’t see that as being bullish. I really hope I’m wrong!
US Treasury to Borrow Record $3 Trillion in 2Q Alone
The Treasury Department announced on Monday that it will attempt to borrow a record $3 trillion in the current 2Q. That’s more than five times higher than the previous record for any one quarter, as the government spends at a frantic rate to try to mitigate the impact of the coronavirus crisis on the US economy.
It will be interesting to see what happens as the Treasury attempts to sell five times more government debt than in any previous quarter. Several obvious questions arise: Will there be adequate demand for such massive borrowing in such a short period? Will interest rates have to rise? At what point will foreign governments who hold our debt begin to revolt?
These are serious questions. It should be clear to all parties who hold US debt that federal spending is wildly out of control at this point! It should also be clear that the $3 trillion the government intends to borrow this quarter will be followed by trillions more in the quarters ahead. The budget deficit is likely to be $4+ trillion for fiscal year 2020, or even higher.
Our national debt, now at $24.95 trillion, will top $25 trillion just ahead, and we’re likely headed to $30T in the next year or so – IF the markets allow it. No major country has ever amassed this much debt in history, even when expressed as a percentage of Gross Domestic Product. Unfortunately, our leaders in Washington seem to believe there is no limit to what we can borrow and spend. Sadly for some, it seems to be the more the better!
Back in early February, the Treasury said it intended to pay down $56 billion in federal debt this quarter and not issue any additional bonds. But that was before it was clear the coronavirus would spread all across the country and tank the economy in the process. Since then, Congress has appropriated nearly $3 trillion to help individuals and companies weather the business shutdowns implemented to slow the pace of the pandemic. And they’re not done yet!
To end this otherwise downbeat letter on a positive note, consider this. Maybe tomorrow’s negative jobs report will be bad enough to convince President Trump to remove all his trade tariffs. That would certainly be good for the economy! Yes, I realize that may be a stretch.
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