All Posts Tagged: labor market

Bulls Get Corralled As Coronavirus Hits Global Economy

Scott Anderson
Chief Economist

A brief period of global economic and financial market optimism over the past four months is quickly going dormant as the global economic impact of the novel Coronavirus (COVID-19) comes into greater focus.

There was a brief “Goldilocks” period of improved global purchasing managers’ indexes late last year into January due to global central bank easing in 2019, an easing of global trade tensions with the signing of the U.S.–China Phase 1 trade agreement, and the U.K. election creating a way forward for Brexit after two years of heightened economic uncertainty.

Investors became convinced a global economic bottom was forming. That global economic rebound forecast by the IMF and others may yet prove to be a mirage.

The Coronavirus is rapidly slowing the momentum of the global economy and sucking the oxygen out of financial markets. While the Conference Board’s Leading Economic Index jumped 0.8% in January, the rebound could prove short-lived as the global growth slowdown accelerates and gradually saps the U.S. labor market and consumer spending of its relative strength.

In recent days, we have received some sobering news on the health of the global economy in the fourth quarter, even before the negative economic impacts of the Coronavirus began to be felt.

Japan, the third largest economy in the world, released fourth quarter GDP and it was shockingly bad, down 6.3% on an annualized basis in the wake of the typhoon and increase in Japan’s consumption tax.

Early reports suggest that Japan’s supply chains and tourism and travel industry are being significantly impacted in the first quarter nearly ensuring that Japan’s economic contraction is extended into the first quarter of 2020.

China’s growth rebound is not expected to be realized in 2020. China will likely see outright declines in its GDP growth on an annualized basis in the first quarter, which will do significant damage to China’s ability to achieve its 6.0% growth target this year. China is still probably operating at around 50-60% of capacity and auto sales and travel in China are down about 90% or more from a year ago.

The impacts are just now starting to be felt on global supply chains beyond China’s borders and we think U.S. companies could see more negative fallout in the second quarter than they acknowledge in the first.  So the premise that it will be a one quarter shock and done is looking less and less likely.

Eurozone growth also downshifted in the fourth quarter with outright real GDP declines for France, Italy, and no growth in Germany. Eurozone retail sales and industrial production both contracted more than the consensus forecast in December.

The preliminary U.S. Markit PMIs for February highlight the challenges that may be ahead for the U.S. and global economy in the months ahead. The Markit manufacturing PMI for February is rapidly revisiting the lows seen last summer, but the biggest surprise was the sharp decline in the Markit service PMI to 49.4, well into contraction territory, for the first time since 2013.

Bottom-line, February’s shockingly bad U.S. Markit PMI data, if confirmed by additional economic indicators in the weeks ahead, are probably bad enough to force the Fed off of the monetary sidelines and into an additional rate cut before the elections.

Our baseline forecast is that the U.S. and global economic slowdown remains in place and the U.S. and global economic risks to that forecast remain firmly on the downside. A cautious investment stance is warranted given currently high valuations.

Check out this week’s U.S. Outlook.

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Reducing Downside Tail Risks for 2020

Scott Anderson
Chief Economist
Gray jigsaw puzzle pieces with a stray piece that has the British flag on it, with the EU logo underneath the puzzle.

For the first time since early 2018 when the U.S.-China Trade War came on the scene and early 2019 when Brexit deadlines came and went, we believe downside tail risks for the U.S. and global economy are measurably easing.

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U.S. Outlook: Is The Aging Workforce Curbing Wage Growth?

Scott Anderson
Chief Economist
median-weekly-earnings-by-age-group

Wages for older workers grew a whopping 10.4 percentage points faster in 1991 than in the current economic expansion.

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U.S. Outlook: Are Consumers About to Feel a Squeeze?

Scott Anderson
Chief Economist

We think it’s about to get harder for consumers in the quarters ahead. For now, they actually still feel pretty good about their current job and financial situation.

Consumer sentiment just hit a three month high in October, according to the University of Michigan Survey. Indeed, U.S. households still have a lot going for them. The U.S. unemployment rate just hit a 50-year low.

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U.S. Outlook: A warning from the jobs report

Scott Anderson
Chief Economist

Hiring faded across the board in May. This is not just a one-off hiccup in the data, but part of a broader more prolonged pattern of labor market softening.

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