Coronarivus Still a Problem, But Some Positive Developments

Fears of a negative economic impact of the coronavirus should continue to weigh on the stock market, but there were some positive developments over the weekend that could limit the damage.   The apparent success of a Gilead drug on a patient in California is a hopeful development.  And, the Chinese central bank's large injection of liquidity and regulators' actions to restrain stock selling show authorities will try to limit economic damage.  But, until widespread success against the disease is seen, any strength in January and even February economic data may be discounted if not dismissed as temporary.  Once it is apparent that the spread of the virus has peaked, a sustained recovery and rally will proceed.  When this happens, soft economic data will be discounted or dismissed.

This week's US economic data should contain at least some stronger prints, but there are caveats.  In particular, January Payrolls risk speeding up from December's +145k m/m pace, based on the Claims data.  The consensus estimate of +165k is not unreasonable.  However, this report will contain benchmark revisions. And, this revision should cut job growth.

The revision brings the monthly Payroll figure for March of the prior year to the level shown by Insured Employment data.   Bureau of Labor Statistics already has released its preliminary estimate, a large -501k.  (In other words, the level of Payrolls in March 2019 is 501k too high relative to the Insured Employment figure for the month.)  A downward revision in the March 2019 level would cut the m/m trend in Payrolls between March 2018 and March 2019 by about 40k.  This reduction in trend should extend past March 2019.  So, the +176k m/m average since then could be revised down to about 135k.  December's pace would be about 100k.   Note that unless the "spending" data used to construct GDP are revised down, as well, the slower job pace would result in higher productivity growth.  Benchmark revisions to the spending data will be released over the next few months, with GDP incorporating them in the Q220 release, due in July.

The consensus estimate of an increase in the Mfg ISM to 48.5 from 47.2 in December cannot be ruled out.  The decline in the December Mfg ISM to 47.2 seems to be too weak relative to the hard data on Manufacturing Output and Employment for the month.  So, an uptick, like the consensus estimate, is not out of the question.  But, there is no reliable evidence.  Other surveys have been mixed, with none having done a good job predicting the m/m directional change in the Mfg ISM.  On the negative side, the stoppage of the Boeing 737 MAX and global economic uncertainty could hold down the Mfg ISM.  New seasonals also could subtract a bit from the January level while raising December, as well. 

To be sure, the broadest measures of economic performance -- the Unemployment Claims data -- are performing well so far in January.  Initial Claims returned to the low range seen prior to December.  And, Continuing Claims have begun to trend down, although the level is still high.  These data do not show much, if any, deterioration stemming from the Boeing production cutback, global uncertainty, or the coronavirus.  The Atlanta Fed model's first estimate of Q120 Real GDP Growth is 2.7%, seemingly consistent with these data.  Most Street economists look for 1.0-2.3% Q120 Real GDP Growth, according to the Blue Chip Consensus survey.   But, there is very little data upon which to base an estimate.  So, Q120 GDP estimates will likely change as additional data become available. 

If virus-related fears recede in the next couple of days, Trump's State of the Union Address (Tuesday night) and his impeachment acquittal (Wednesday) should prompt a bounce in the stock market.