Barron\'s - April 6 2020

April 6, 2020 BARRON’S 7

UP & DOWN WALL STREET

March’s jobs survey took place at mid-month,

failing to capture fully the stunning payroll losses

later reflected in surging jobless-insurance claims.

The Headlines Are

Awful. The Real News

Is Even Worse.

T

here’s good news

and bad news about

the economy as the

crisis brought on by

the coronavirus

pandemic deepens.

The bad news is

that the substance of the recent eco-

nomic data is even worse than the

headlines. As for the good news, well,

maybe it’s that with each passing mis-

erable day, we’re closer to the end of

this ordeal, even though a finale is

nowhere in sight.

That was exemplified by Friday’s

report that 701,000 nonfarm jobs

were shed in March, the most since

2009 in the wake of the Great Finan-

cial Crisis, while the unemployment

rate jumped to 4.4% from the half-

century low of 3.5% hit in February.

As dreadful as that drop was, the La-

bor Department’s survey took place at

mid-month, so it failed to capture fully

the stunning job losses reflected in the

surge in claims for unemployment

insurance, which totaled nearly 10

million in the most recent two weeks.

The rise in the headline jobless rate

also understates the actual deteriora-

tion in the labor market. The survey of

households, from which the number is

derived, showed that, in addition to a

jump of 1.4 million Americans who

were unemployed, 1.7 million were

employed but not at work because of

illness or “other reasons,” while 1.

million left the labor force. These 3.

million “hidden” unemployed would

boost the jobless rate by an additional

2.1 percentage points, John Ryding and

Conrad DeQuadros, economists at

Brean Capital, write in a research note.

Not surprisingly, the establishment

survey shows, the weakest payroll sec-

tor was leisure and hospitality, which

shed 459,000 workers. Total hours

worked plunged some 1.1%, a result of

the payroll drop and the shrinkage of

the workweek, by 0.2 of an hour, to 34.

hours. The one seemingly bright spot in

the report was a 0.4% increase in aver-

age hourly earnings, but that also was

misleading. Last month’s job cuts fell

most heavily on lower-paid workers,

such as the aforementioned leisure and

hospitality employees, leaving relatively

better-paid workers in the data.

The monthly employment figures,

while flawed, are usually the most im-

portant, offering the first, relatively

comprehensive look at the U.S. econ-

omy. But as dire as they were, they

were largely treated as relatively old

news by the markets when reported

Friday. The weekly jobless claims tally,

released each Thursday morning, now

is watched most closely by both the

markets and the general-interest media

as the primary real-time indicator of

the state of the U.S. economy.

An even better indicator of the

deepening economic slide comes from

tax collections, according to Joseph

Carson, former chief economist at

AllianceBernstein. Federal income tax

withholdings were down 10% in the

last two weeks of March from the total

a year earlier, he points out.

“Unlike most economic reports,

federal withheld income tax collec-

tions are ‘hard’ data, as they reflect

the money collected from a worker’s

paycheck, every day of the month,”

Carson writes on his LinkedIn page.

By “hard data,” he means that the

numbers aren’t processed or adjusted

by government statisticians or later

revised as more companies report.

Withheld tax collections are begin-

ning to show up in the survey of states

by TLRanalytics. In March, 46% of

the states surveyed met or exceeded

their forecasts, down sharply from

73% in February. Some 68% reported

increases in March, down from 90%

in February.

There are two important aspects to

the data, write TLR’s Philippa Dunne

and Doug Henwood. The state-with-

held tax receipts are a bit lagged and

reflect late February and early March,

before the big Covid-19 closures, and

were compiled “during a period when

too many Americans did not under-

stand the seriousness of the situation.”

In addition, there was an extra col-

lection day in March in many states, so

the real pain will show up in the April

numbers, Dunne and Henwood pre-

dict. The surge in unemployment com-

pensation claims points to a sharp fall

in federal withholdings this month,

Carson points out.

The $2 trillion stimulus from the

recently passed federal Cares Act can’t

reach Americans fast enough, includ-

ing the $350 billion of forgivable loans

to small businesses through the SBA’s

Paycheck Protection Program to keep

workers on payrolls (which got off to a

rocky start Friday, according to vari-

ous published reports). That’s espe-

cially true given what could lie ahead.

Cornerstone Macro writes that “pay-

rolls in April could shrink 20 million

(not a typo), with the headline unem-

ployment rate surging to 17%.”

Given this bleak economic outlook,

plus the continued rise in coronavirus

cases and deaths that have yet to crest,

it is little wonder that the consensus

outlook for stocks is for the major

averages to retest their recent lows.

The S&P 500 index has given back

about one-third of the previous week’s

pop. Its 2237.40 recent closing low on

March 23 lies only 10% below where

the benchmark ended the week, not a

big move in today’s context.

Given the massive job losses, both

reported and yet uncounted, it seems

By Randall W.

Forsyth

Keep an eye on withheld tax

collections. Federal income tax

withholdings were down 10% in the

last two weeks of March from the

total a year earlier, while only 46%

of states surveyed met or exceeded

their tax-collection forecasts in

March, down from 73% in February.

Photograph by Spencer Platt/Getty Images