Worst US Jobs Report in History was Worse than Investors Think, but the Dow Loved it!

The Dow Jones (DJIA) last week ignored the worst US jobs report in history as if it were of no concern because investors hope the coronavirus crisis is here on a short-term stay.

Some argue in the market’s defense that the Dow has already discounted bad jobs reports. I say investors have not even begun to fully factor them in. Investors are running on testosterone and pretending these historically savage reports will quickly fade.

While the latest rise in unemployment is not new news, it is old news that has largely been denied.

For example: the Dow initially began to recover because the crisis was supposed to go away in May. The number of new cases was supposed to be way down by now, and jobs were supposed to be starting to return.

That was nonsense at the time, and it has clearly been proven wrong now.

Graph of new coronavirus cases in the US
Source: Wikipedia

This graph shows the coronavirus has barely slowed its assault on the US. That means re-opening risks rampant new infection that could send the US through this whole unemployment cycle all over again.

It’s unwise to simply ignore that strong possibility. Even Dr. Anthony Fauci says it is “inevitable” the virus will return in the fall, and it may not even go away in the summer:

Instead of dropping when that reality became obvious, however, the Dow rose because investors chose to believe the coronacrisis has merely postponed its departure until June. After all, it’s hard to catch a flight out these days.

The Dow embraced the horrid jobs report on Friday by shooting up 370 points by mid-morning. By the end of the day, the Dow made a moonshot above 450 just for fun because the horrendous jobs report was so ecstatically exciting.

It only took Credit Suisse Chief Economist James Sweeney one sentence to explicate what this says about the U.S. economy: “This might be the worst macroeconomic data report in U.S. history.

The Dow shot up because investors are choosing to believe that unemployment will soon improve, but the unemployment rate will have to improve to being as good as it was prior to the coronacrisis to justify valuations that were already overpriced before the virus slaughtered American jobs.

Besides ignoring the worst job report in history, investors have chosen to ignore a full week of the worst earnings reports in history and the most dismal forward guidance on earnings. In fact, forward expectations are so dismal most companies are not giving any guidance, which is also historic.

The Dow rose in spite of rapidly rising bankruptcies, rapidly falling corporate credit ratings, rising mortgage defaults, etc. on the basis of hopes in a phantom vaccine that may not even be possible to achieve.

If investors are going to tune out all of that as mere noise that goes against what they want to do, what does the biggest flush of a jobs report in history matter? Just more noise that would spoil the party.

How Bad Was It?

Taken at face value, the jobs report wasn’t as bad as economists feared.

Nonfarm payrolls fell by 20.5 million in April and the unemployment rate rose to 14.7%, both post-World War II records. Economists had been expecting a loss of 21.5 million jobs and the unemployment rate to surge to 16%. The “real” unemployment rate, which includes workers not looking for jobs and the underemployed, surged to 22.8%.

That is, however, as bad or worse than most of the Great Depression:

Records were not kept during the Great Depression by the same measures used now, and present records leave many out. That makes an exact comparison in employment statistics impossible…. Unemployment remained above 14% from 1931 to 1940…. During the Great Recession, unemployment reached 10% in October 2009.

Unemployment that is “greater than the Great Depression” ought to be worth greater consideration. Moreover, the latest jobs report doesn’t even count the last half of April.

As Dreadful As The US Jobs Report Was, The Truth Is Far Worse

Real unemployment is actually far more distressing than this report reveals and more dire than the Dow is willing to believe, and it is far from being temporary.

First of all, unemployment numbers would be worse then they were during the Great Depression if calculated as they were during the Great Depression.

At its peak, the Great Depression hit a 25% unemployment rate:

Shadowstats, a site that recalculates unemployment as it was historically measured (without the government’s goal-seeking adjustments), states that the unemployment rate is actually around 35.7% if calculated by historical methods.

To be counted among the U.S. government’s headline unemployed (U.3), an individual has to have looked actively for work within the four weeks prior to the unemployment survey conducted for the Bureau of Labor Statistic (BLS). If the active search for work was in the last year, but not in the last four weeks, the individual is considered a “discouraged worker” by the BLS, and not counted in the headline labor force…..

unemployment graph based on US jobs reports recalculated by Shadowstats.
Source: Courtesy of Shadowstats.com

Bad Jobs Reports Will Not Be So Soon A Thing Of The Past

Second, not everyone is on the Dow’s “this too shall pass” bandwagon:

Danielle DiMartino Booth asks in tweet if layoffs in the US jobs report are really temporary as claimed.
Source: Twitter

Re-opening is going to happen incrementally. Since New York started re-opening, the number of new coronavirus cases has started creeping back up.

Many communities have cancelled all public events throughout the summer. That’s a lot of lost summer jobs. Theaters are not re-opening this summer. Sports events aren’t coming back this summer. All of those events help juice surrounding businesses like restaurants.

Restaurants may find wary customers do not return in sufficient numbers to make it profitable to re-open. Others will go out of business before they’re allowed to re-open, as the re-opening rules vary from state to state.

Airlines aren’t going to snap back, nor are crowded hotels. Cruise ships won’t be bringing tourists into port this summer.

All of that will result in more small businesses that just cannot weather all of this. They didn’t get any bailout relief because big businesses quickly sucked up all government funds, so they’ll close. Those jobs won’t be coming back.

Many colleges are not planning to fully re-open even in the fall. That will be a job hit for college towns.

With all that lost local tax revenue, local governments will have to restructure to balance their budgets. That will result in new losses in government jobs.

Even JPMorgan says employment will take years to come back:

J.P. Morgan Chief Investment Officer Bob Michele predicted it will take 10-12 years after the pandemic for U.S. employment to get back to its pre-coronavirus level, insisting it won’t be as simple as turning the economy back on.


Others present a rosier picture of a mere one to two years from now for employment and business to get back to where it was, but the Dow says investors believe, against all odds, it will happen much sooner than that because that’s what they want to believe. All other data are to be discarded.

And that’s how the Dow came to ecstatically embrace the worst US jobs report in history — worse than any unemployment news during the Great Depression:

This has to be the most heartbreaking day in the history of the job market…. We could get back to the same level … by 2021 or 2022…. The market is willing to bet it will get lucky:

The stock market is more delusional than any market in history

But the bulls believe that’s a good thing.

Whatever calamity comes from such delusions of grandeur, this parade of lunatic investors will fully deserve every ounce of pain they get, for they are the ones creating it with their unbridled greed and bullheaded optimism that chooses to ignore every negative economic fact known to humankind.

The rise of the stock market will not save the economy, which is going down for a long time. There is no short road back to total jobs recovery as we move on to the phase where the knock-on effects are all permanent damage — the damage of irreparable business closures, permanent loss of those jobs, shutdowns in parts of the oil industry, business and personal loan losses and then home foreclosures.

In March, April and May the damage was to the jobs report. By June it will likely start to appear as a significant rise in credit delinquencies (missed payments) that become defaults as they hit the ninety-day mark. Then the foreclosures may start to begin in July. By August or September, we move to bank closures — maybe in Europe or South America first, but causing contagion that eventually reaches badly weakened banks in the US, too, before year’s end.

While the government is trying to create safeguards against those second and third waves of economic damage, we saw how effectively the government’s first programs worked with $20 billion loan/grants going immediately to massively wealthy businesses while mom and pop were left to go out of business. That’s still far from fully rectified.

The shutdown to this point was somewhat voluntary. The startup is an entirely different story. You can, apparently, make people stop doing business overnight, but you cannot make business happen … even if you demand businesses re-open.

(This article was originally published on CCN.)

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