When it comes to economic news, the world is a gloomy place becoming gloomier by the day.
Take yesterday: it’s hard to know which was the gloomiest news. Was it the record lows for the preliminary monthly surveys of manufacturing and the key services sectors in Australia, Japan, Europe and Britain? Or was it another mind-numbing 4.4 million rise in first-time US jobless claims taking the total in five weeks to a staggering 26 million-plus?
The past week’s fall was sort of good news, being lower than the 5.2 million last week and more than 6.8 million the week before. The declining trend is a small mercy that can’t hide the fact that the 22 million jobs created in the long boom from the end of 2009 to February this year have been well and truly wiped out.
The new claims of the past five weeks represent about 16% of the US workforce.
That gruesome statistic will show up in the April jobless data to be released May 8. That’s because last week’s claims report covered the period during which the government surveyed business establishments for the non-farm payrolls component of April’s employment report.
Economists are forecasting as many as 25 million jobs were lost in April after the economy purged 701,000 positions in March, which was the largest decline in 11 years.
April will top that.
Before then we get more jobless claims next Thursday, as well as the first estimates of GDP for the US, also Thursday. The Eurozone will report the following day. Both will be gloomy, but not as bad as the June reports in three months time.
So brace yourself. The news is going to be bad for a while.
It’s clear that the major economies around the world are heading for the steepest fall in economic growth in 90 years. From what Australian surveys of manufacturing and services suggest, Australia is on track to see a 10% slump in GDP, as estimated by Reserve Bank governor Philip Lowe. Most, if not all of that is already happening.
The survey results (the final versions will be released on May 1) tell us that global economic activity all but ground to a halt this month as government-imposed lockdowns took a particularly heavy toll on the world’s service industries.
The US reports were the last to be released and were just as gloomy, particularly services. The IHS Markit flash purchasing managers index (PMI) — seen as a good gauge of economic health — for US services fell to a record low of 27 in April, while the manufacturing PMI weakened to 36.9, the lowest level in 11 years.
“Services companies registered the steepest rate of decline in the survey’s history,” IHS Markit economists said. “The cancellation and postponement of orders led firms to reduce their workforce numbers at a rate far exceeding anything seen previously over the survey history at the start of the second quarter.”
Similar surveys in Europe, Japan, the UK and Australia showed a similar outcome, with record lows for the services sector PMIs and similar comments.
In Australia, Commonwealth Bank/IHS Markit flash services PMI slumped to a record low 19.6. The flash manufacturing PMI fell to 45.6 in April from 49.7 in March (still boosted by demand for essentials like toilet paper, etc). The combined flash PMI slumped to a record low 22.4 points. A reading below 50 signals that most firms saw weaker activity levels.
The UK survey was particularly brutal. Its PMI fell to a new record low of 12.9, and the scale of the collapse all but guarantees a huge contraction in the world’s fifth-largest economy.
Britain’s economy will contract 13.1% this quarter, a Reuters poll predicted earlier on Thursday, which would be the biggest quarterly drop since World War II. A similar poll by Reuters found consensus for a 9.6% slump in the Eurozone.
In the Eurozone, IHS Markit’s Flash Composite PMI sank to 13.5, by far its lowest reading since the survey began in mid-1998 and considerably below all forecasts in a Reuters poll.
Even the most pessimistic contributor to the poll had predicted a reading of 18.0. IHS Markit said that reading suggested a June quarter contraction of around 7.5%.
In Asia, Japan’s services sector PMI shrank at a record pace in April, plunging to 22.8, the lowest reading since the start of the services sector survey in September 2007. Its factory PMI fell to 43.7, its lowest since April 2009.
South Korea’s economy contracted by 1.4% in the March quarter, according to preliminary estimates.That was after a 1.3% growth rate in 2019.
And exports plunged 26% in the first 20 days of April, an important indicator for the country which (like Japan) depends more heavily than most on exporting manufacturing, such as cars.
American media reports showed pictures of thousands of Kia model cars dockside in the US, unwanted.