A jobs report that will live in infamy: Morning Brief

By Tommy Flemm 5 years ago

Friday, May 8, 2020

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And why one strategist thinks focusing too much on this data is a waste of time

The worst jobs report in modern history will be released in just a few hours.

Perhaps by the time you read this the numbers will indeed be out.

The forecasts are almost incomprehensible. Wall Street expects the report will show 21.25 million Americans lost their job in April with the unemployment rate rising to 16% from 4.4%, according to estimates from Bloomberg.

As we noted on Thursday, job losses in excess of 20 million in a single month would represent a doubling of all the job losses suffered during the financial crisis induced recession. Economists at Bank of America Global Research wrote earlier this week that today’s report will “go down in infamy.”

But much of what Friday’s data will reveal to investors is already known. Initial jobless claims have been in the millions for weeks, with more than 33 million workers filing for unemployment insurance in less than two months. Many of these job losses have been more or less mandated by the government.

And sure, the details of Friday’s report in terms of which states, which sectors, which demographics are being hardest hit in these early phases of the crisis may offer clues about what shape future aid packages take. Some of these jobs may even come back when lawmakers lift restrictions put in place to stem the virus’ spread.

But in a note to clients published Thursday, David Zervos at Jefferies made the case that high-frequency data like jobs reports and corporate earnings just don’t hold a lot of value right now. And for one specific reason — these data points do little to answer the clear unknowns facing the market right now.

Cars line up at a Foodshare distribution center at Rentschler Field in East Hartford, Conn., Thursday, May 7, 2020, during the coronavirus pandemic. (AP Photo/Mark Lennihan)

In Zervos’ view, all investors really know right now is what the Fed has done, what it hasn’t, and everything else is a big fat question mark. The depth of the downturn, the length of the downturn, how it impacts earnings, and which businesses will be saved by the Fed’s efforts to backstop big parts of the economy are all unanswerable questions. All we can do to glean these answers is wait.

And in the interim, thinking too hard about any one piece of data isn’t going to get anyone closer to anything resembling an answer.

“I would argue that spending any time looking at economic data releases, or focusing on corporate earnings releases, is a colossal waste of time,” Zervos writes. “At least for the foreseeable future.”

Zervos adds:

For example, is there any information contained in this week’s payroll report that could help us to better forecast the things we don’t know?? NOPE!!! Whether the unemployment rate comes in at 10% or 30%, does it really matter? The signal/noise ratio in this data, along with ALL other upcoming economic data releases, is basically zero. Further, if earnings at a large conglomerate miss by 10, 20, or even 50 percent relative to expectations, does it change the outlook for their long-run earnings potential? NOPE AGAIN!!!

The focus today should instead be squarely on the Fed and its programs.

Under this framework, then, Friday’s jobs report is more of a morbid curiosity, a rubbernecking event for investors who have already seen markets start betting on what “re-opening” does and doesn’t look like.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: Change in non-farm payrolls April: -21.705 million expected, vs. -701,000 in March

  • 8:30 a.m. ET: Unemployment rate April: 16.0%, vs. 4.4% in March

  • 8:30 a.m. ET: Average hourly earnings month on month April: +0.4%, vs. +0.4% in March

  • 8:30 a.m. ET: Average hourly earnings year on year April: +3.3% expected, vs. +3.1% in March

READ MORE

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Tesla aims to restart Fremont plant as soon as Friday: Bloomberg [Reuters]

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