Economic activity declines precipitously

timeApr 03, 2020 | 09:10 amYuval Bar-Or

As expected, this week we’ve received reports confirming the abrupt global slowdown. European nations including Italy, Spain, the UK and Germany experienced severe contractions, reflected in their Purchasing Managers Indexes (PMI), which gauge services and manufacturing business activity. Monthly numbers usually fluctuate by one to two points per month. Numbers below 50 indicate that a majority of corporations within that economy experienced monthly activity declines.

Across the board, pre-COVID-19 index values were in the low to mid-50s for large Western European nations. The recently released numbers are stark: in the twenties and thirties. Italy’s PMI crashed to 17.4. Sweden, which took a contrarian approach by not imposing broad shutdowns, nevertheless showed a comparable twenty point decline from 56.89 to 36.8.

In the USA, the March jobs report showed that employers cut over 700,000 jobs, raising the unemployment rate from 3.5 to 4.4. This number undoubtedly understates the current unemployment rate, as it doesn’t include the millions of Americans who applied for unemployment benefits over the last two weeks. (The March jobs report contains data up to the middle of the month).

Assuming the current trend continues, the April report may well break the record for a one-month decline in jobs, vaulting the unemployment rate upward dramatically. Some analysts forecast unemployment will quickly rise to the mid-teens. Others believe we will top out in the twenties—numbers not seen since the Great Depression. 

And so begins the steady thrum of negative economic numbers I predicted in an earlier blog post. Stock markets worldwide have attempted to anticipate these disturbing numbers, but we are now for the first time seeing the actual numbers manifested. For the most part, they are worse than anticipated. For market watchers, the big question is whether these negative surprises will cause markets to resume their earlier slides.

As more negative numbers are released, morale may falter further. But make no mistake, we will get through this. Other countries’ draconian measures have slowed the virus’ spread. We can and must do the same. Once it is safe, we will pump life back into our economy.