With major US averages down over 6% today and a US economic recession appearing all but certain, last week’s strong employment report for February was written off before it was even released. The employment report wasn’t the only strong economic data point that we have seen in recent weeks but was part of a bigger trend of improved economic data. Take the Citi Economic Surprise index for the United States. Ever since last December, the index has seen a sharp turn higher and in just the last several trading days broke out to its best levels since the end of 2017. Of course, all of this data is stale: it doesn’t account for the large shock to aggregate demand which is currently unfolding or is likely about to unfold via the Covid-19 virus and measures necessary to stop it. Some countries have already felt the pain: China was able to stop rapid spread of the virus by shuttering its economy almost entirely, while the Lombardy region of Italy has seen massive restrictions on travel, public gatherings, and other forms of economic activity too. Any kind of similar restrictions on US activity or even voluntary measures undertaken by individuals would make the post-crisis norm of 2% real growth a pipe dream for the middle of 2020.
The impact of reduced activity won’t show up in data for a couple of weeks, but it’s almost certain to drive down activity relative to expectations. It’s a shame, too: prior to Covid-19, the global economy looks to have turned a
corner and was accelerating sharply for the start of 2020 after Fed easing last year. The G10 major economy economic surprise index was at the highest level since the synchronized uplift in global growth which buoyed activity in 2017 as-of this morning, but thousands of Covid-19 cases across Western Europe and the rest of the world have completely flipped the global economy. For investors and economies alike, the data suggests that optimism from the start of the year would have been correct if not for the brutal impact of the coronavirus across the world over the last two months. Start a two-week free trial to Bespoke Institutional for full access to our research and interactive tools.