VIPs
- February’s JOLTS painted a stable pre-COVID-19 picture with hires less than 2% off April 2019’s peak; signs of slowing included a declining private sector quit rate, a rise in layoffs outside the south and falling job openings, which were 0.3pps off their October 2019 highs
- February paycheck growth was a solid 3.0% spread across 11 of 13 industries; the breadth of shrinking paychecks was a mirror image in March, with 11 of 13 industries contracting, underlying the deep need for the extra $600 in weekly UI benefits care of the CARES Act
- The credit to cash spread continues to invert suggesting households were battening down the hatches prior to the virus outbreak; those who can will stash more cash in coming months while those whose budgets hit a break point will fall behind on their financial obligations
Today’s title may take some of you from the MTV generation back to a certain scene in the 1980 movie Airplane!when a brown object hits a black fan. This visual is depicted with full intent. The original phrase we’ve overdubbed refers to a problem that escalates into a post-facto disastrous result. As the backstory goes, upon first reading the script, star Leslie Nielsen pushed back on the “peanut butter,” predicting, “People aren’t going to laugh at that.” (Nielson had a pungent point.)
When U.S. retail sales hit the fan a week from today, economists might find themselves crying instead. We know cringe-worthy March data is headed our way. While we wait it out, let’s assess the pre-COVID-19 U.S. consumer.
Yesterday’s dated Job Openings and Labor Turnover (JOLTS) report was ignored by investors singularly focused on virus stats. But as we’re apt to say, starting points matter. To that end, the number of hires in the U.S. private nonfarm sector remained in a good place before Coronavirus hit. February’s 5.517 million hires were less than 2% off the April 2019 expansion peak, and the trend continued to expand at a decent 3.2% year-over-year clip (yellow line). In fact, hires in the cyclical industries of natural resources, construction, manufacturing, wholesale, retail and transportation hit a cycle high 2.032 million, expanding 9.0% over February 2019’s level.
The average paycheck in the private sector was also expanding solidly in February. There was good breadth on the month – 11 of 13 major industries rose month-over-month – and the 3.0% gain over the year appeared to be the start of a 2020 re-acceleration after a 2019 moderation.
That’s where the good news ended. As QI amiga Philippa Dunne noted, three of the four JOLTS components softened in February. The quit rate, a gauge of worker confidence, was 0.1 percentage point (pp) lower over the prior February but more notably slipped 0.1pp over January in the private sector. Involuntary separations rose by 0.1pp to 1.2, level with last year, but that was geographically concentrated – layoffs fell over the year in the south but rose in the other three regions. And finally, the job openings rate was down 0.2pps over the year, 0.3pps since October, and 0.1pp over the month.
Jumping to March data in hand, average weekly earnings mirror-imaged February. Eleven of 13 major industries declined over the month and the annual trend decelerated a sharp 0.8pp to 2.2% (blue line). April will look much worse as evidenced by the “money grab factor” waning suddenly in March. Job leavers fell to a 10.5% share of the total unemployed, a record 2.9pp drop compared to the prior month. The year-over-year trend (illustrated above in red) revealed the sharpest deterioration since the last recession.
The inflation in worker pay has turned deflationary. Growing paychecks and rising “good unemployment” (a.k.a. job leavers) had put in motion a virtuous feedback cycle. Forced shutdowns and a freeze on forward wage guidance should lead to forced reductions in personal savings if the outbreak lasts longer than anticipated or returns in a second wave.
That helps explain why cash hoarding isn’t exclusive to businesses. Until the pandemic curve decisively flattens, households will hoard excess cash flow. Splurging these days is limited to grocery food runs and online electronics, two sectors that have benefitted in the current episode.
Bucking the trend will be the unemployed who earned the least before the virus outbreak, especially the previously ineligible self-employed and gig workers. Not only does the CARES Act expand eligibility, it provides an extra $600 per week through the end of July. An analysis by Bank of America found that, “on average, unemployed workers who were making less than $50,000 annual gross income will likely earn more through unemployment benefits in 2Q than if they worked.”
Does this mean that lower-income households won’t max out their credit cards? What about the rest of the income stack? Pre-COVID-19, credit card usage wasn’t particularly problematic. Yesterday’s report from the Federal Reserve revealed February revolving credit increasing 3.2% year-over-year, on par with January (green bars).
That said, a defensive posture was building. At -5.8%, the credit to cash spread (purple line) remained inverted; cash equivalent money of zero maturity was growing at a 9.0% annual rate in February. This spread will widen noticeably as cash was being stockpiled at an even faster 15.3% annual pace in the week ended March 23.
And those are the lucky ones who can afford to save. In the NY Fed’s March survey of consumers, 15.1% said they were worried about missing a minimum debt payment over the next three months, well north of the 12-month trailing average of 11.6%.
Nothing may have hit the fan in February in the consumer sector. March and April will smell a lot different.