Global panic, but strong hiring……
The answer to Covid-19 is not rate cuts. The point was made in last week’s commentary and bears repeating. The US economy was fundamentally very strong at the start of 2020. Payrolls rose by an average of 273k m/m in January and February. The non-manufacturing ISM showed an impressive rise in the new orders index for February, from 56.2 to 63.1. The Fed would have been looking to hike, not cut.
The details of the employment report were encouraging too: previous commentaries had alerted readers to a possible slowdown in hiring for the important category, professional & business services. This contains many tech-related services, but February saw employment jump 41k m/m. This was the best reading since October.
Furthermore, the virus may have peaked in China. Government officials in China have reported – for the first time since the start of the epidemic – no new cases of Covid-19 in the Hubei province outside of the capital city Wuhan. New cases in Wuhan itself are forecast to drop to zero by the end of the month.
Dr Aylward of the WHO has claimed that the biggest lesson for Western countries from the Chinese experience was not the “draconian” approach taken in shutting down Wuhan, but the speed with which infected people were identified and isolated. Governments outside of China were “obviously not” acting quickly enough. Cutting interest rates seems an odd choice of policy weapon to fight a virus.
• Rate cuts not the answer
• Impressive momentum in US economy
• Learn from China, Covid-19 peaks
