Updated: Mar 26, 2020
Typically, monthly NFP data is the most important data release of the month. It tells investors how many new jobs were created, how hourly earnings have changed and where the unemployment stands.
However, we are no longer in typical times. Over the course of the last 10 or so days, the number of confirmed cases of Covid-19 in the US has shot up dramatically, particularly in New York.
As such, much of the country has gone into lockdown, with devastating effects on the economy.
To explain the obvious; when a whole country goes into quarantine and stringent “social distancing” measures are implemented, the effect on numerous industries is devastating. All US tourism has stopped. Bars, restaurants, gym, shopping malls, entertainment venues are all closed or are under severe financial pressure to do so. Really, any industry which cannot avoid on close person to person contact is devastated - which, by the way, is a huge percentage of any economy, not just the US. As such, businesses faced with financial ruin have to release a huge number of workers.
Given how recently, and swiftly, economy-wide lockdowns have been put in place, investors need a more timely update on the state of the US jobs market than can be provided by monthly NFP data. They do not want to wait until next Friday (when the official jobless data for March will be released).
Enter weekly initial jobless claims.
Tomorrow, we get the latest weekly update on the number of new claims for unemployment benefits. Weekly unemployment claims serve as a measure of worker confidence in the economy, as only people who think they won’t be finding a job soon take the time to file for unemployment insurance.
Last week, jobless claims rose to 281k, above expectations for them to remain steady at around 220k (“normal” levels seen in recent years).
This week’s number is seen skyrocketing into the millions.
According to analysis from Goldman Sachs, unemployment insurance claims could spike to an unprecedented 2.25 million.
Analyst David Choi put the number of claims for the week ending March 21 at 2.25 million based on seasonal adjustments. His most conservative estimate for the figures was 1 million, which would far exceed the record set in 1982 of 695,000 weekly claims.
The median estimate from economists surveyed by major newswires is for a slightly more conservative rise to 1.5 million.
How might this affect markets?
Markets are expecting an ugly reading, that much is certain. But how ugly is ugly?
Should initial jobless claims be much higher than expectations, say 2 million or above, we could be in for a stock market sell-off. Unemployment claims soar as economy tanks amid Covid-19 crisis would be the likely headlines.
If things are not quite as bad as feared, say unemployment claims jump by under one million, we might be in for a bit of a relief rally as investors mull whether the economy is more resilient than previously thought.
During these uncertain times, we should take some positives and use this time wisely; let's continue to self-educate and be constructive. There are opportunities every day to extract money from the markets.
Freak Network wanted to offer you a substantial discount of 25% off our technical and fundamental courses.
At checkout use code: STAYHOME