The epicenter of the economy’s current plunge will be the "leisure" sectors: travel, accommodation, recreation, and food services.
Private-sector payroll jobs declined a jolting -713,000 in March, as the effects of COVID-19 on the economy began to set in earlier than expected. Our preferred jobs measure, private sector excluding construction and retailing, showed a decline of -638,000.
These declines were "earlier" than anticipated, because the understanding has always been that "monthly" payroll data actually refer to a specific pay period of the month, that including the 12th of the calendar month. With widespread virus-related shutdowns beginning only after March 13, most economists’ guesses were that the March payroll report would show little or no effect of the shutdown.
Instead, again, we saw a large drop in payroll jobs. So, either employers were quicker to respond than we understood, or our understanding of how the jobs data are constructed is flawed.
By way of comparison, jobs losses AVERAGED -764,000 per month over the six months from November 2008 through April 2009 that marked the nadir of the Great Recession. So, the March declines are on par with the worst of the Great Recession, and we believe that April data will likely be worse. As bad as the March declines were, they are still a very early look at the virus effects, and job losses are sure to be worse in the months to come.
The epicenter of the economy’s current plunge will be in the "leisure" sectors: travel, accommodation, recreation, and food services, and these sectors dominated the March declines, but not as much as one would have expected. Food services (restaurants) showed a job loss of -417,000 (almost -4%), but accommodations (lodging) was down “only” -29,000 (about -0.1%) and recreation down -13,000 (-0.5%), with passenger travel down only slightly. These last three sectors are likely to see much steeper losses in April.
Altogether, these four "broad leisure" sectors employed 17.2 million in February, and the ultimate losses there could come to 50% of that count. Much will depend on how long the shutdowns last and how much assistance employers receive in sustaining their workforce in the face of these unprecedented, forced closures.
Meanwhile, other sectors registered some surprising (surprisingly early) declines. Retailing lost -46,000 jobs, with losses concentrated at stores selling "discretionary" items such as vehicles, furniture, apparel and sporting goods. Health care other than hospitals lost -43,000 jobs. Employment agencies lost -49,000 jobs (-1.3%), as firms were relatively quick to shed temporary assistance. Construction and manufacturing job losses were relatively mild, understandably, at -29,000 and -18,000, respectively.
Again, the March losses are just the beginning. We are still of the mind that the US economy can rebound quickly when and as virus infections come down and shutdowns are lifted. However, that date is still in the uncertain future, and in the meantime, we all need to brace for economic numbers that will get worse before they get better.
Monthly Job Growth
Source: Bureau of Labor Statistics. Adjusted for Verizon strike in 2016 and GM strike in 2019. As of 31 Mar 20
Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the "$" (dollar sign) represents U.S. Dollars.
This material is only for distribution in those countries and to those recipients listed.
All investors and eligible counterparties in EU and EEA countries:
In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office Floor 6, Building Three, Number One, Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4. D04 EP27, Ireland. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.
In the UK, this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the UK Financial Conduct Authority.
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH.
Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.
All Investors in the People’s Republic of China (“PRC”):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC. The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission. Investors should read the offering document prior to any subscription. Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only. Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (109) Jin Guan Tou Gu Xin Zi Di 016; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.
This material has not been reviewed by any regulatory authority in Korea or Taiwan.
All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.
All Investors in Australia and New Zealand:
This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827). The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.