Markets remain unfazed despite shock unemployment figures and new data showing just how deep the crisis runs.
The IHS Markit Purchasing Managers’ Index (PMI) dropped to record lows globally, with historic slumps in the US and eurozone as the impact of the coronavirus on the real economy becomes apparent.
United States Composite PMI posted 27.4 in April, down from 40.9 in March, signalling “the fastest reduction in private sector output” since the series began in 2009. That largely reflects slumps in domestic and foreign demand caused by temporary company closures and health-based travel restrictions.
Services companies registered the steepest rate of decline in the survey’s history, while manufacturers recorded the sharpest falls in sales since the darkest days of the GFC. Outlook confidence also dropped, and was “pessimistic” for the first time, with many firms concerned about the timespan of any recovery.
“The COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history during April,” said IHS Markit chief business economist Chris Williamson. “The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis, with jobs also being slashed at a rate far exceeding anything previously recorded by the survey.”
The US reported a 4.4 million increase in unemployment claims, bringing its total to more than 26 million and inching closer to 20 per cent unemployment.
The eurozone was also smashed, suffering the steepest falls in business activity and employment “ever recorded” as composite PMI plummeted to a record low of 13.5 in April – down from the already record low of 29.7 in March.
“The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection,” Mr Williamson said. “The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index falling far below consensus estimates.”
But markets appear relatively unfazed, continuing a trend that has emerged since their deep trough in mid-March.
“Markets are seemingly shrugging off the worsening economic data for the month of April,” said Kerry Craig, global market strategist at JP Morgan Asset Management. “The latest round of Purchasing Managers’ Index (PMI) for the US and eurozone plumbed new lows for services, but it was to be expected.”
“When numbers become this extreme the market may be becoming a little desensitised, preferring to focus on whether this represents the trough and the support from central banks and governments.”
Data for Australia through the Commonwealth Bank Flash Composite PMI was similarly dismal, falling to 22.4 from 39.4 in March off the back of business closures.
“This is an astonishing result,” said CBA head of Australian economics Gareth Aird. “The services sector has been hit a lot harder than the manufacturing sector. And the pace of job shedding is concerning though not surprising given the large number of Australian businesses that remain shut.
“The extent to which the PMIs rebound will be dictated in large part by the duration of the enforced shutdown.”
But with no end in sight – and questions being raised about how quick the rebound will be when lockdowns are lifted – it doesn’t look like the outlook will improve anytime soon.
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