Robust US Job Growth Boosts Economy as Coronavirus Fears Hit Markets

'This was a grand slam home run of a jobs report,' said Robert Johnson, professor of finance at Creighton University
March 6, 2020 Updated: March 6, 2020

U.S. employers maintained a robust pace of hiring in February, giving the economy a strong boost as it faces headwinds from the coronavirus outbreak.

The Labor Department’s closely watched monthly employment report issued Friday showed that last month, the economy added 273,000 jobs, formally known as “nonfarm payrolls.”

“This was a grand slam home run of a jobs report,” said Robert Johnson, professor of finance at Heider College of Business, Creighton University, noting that the figures exceeded expectations.

“The February jobs report smashed expectations by a whopping 98,000 jobs,” Johnson told The Epoch Times in an emailed statement. “Additionally, previous months’ numbers were revised significantly upward. January payrolls revised upward by 48,000 jobs, and December payrolls revised upward by 37,000 jobs.”

The report also indicated that the jobless rate shaved 0.1 percent off its previous month’s number, falling back to near a 50-year low of 3.5 percent.

While the upbeat report likely does not fully capture the impact of the coronavirus, which started to spread in the United States in late February, there are so far no signs that the epidemic has hurt the labor market.

“What this jobs report shows is that pre-coronavirus, the US economy was on a very solid foundation,” Johnson said. “This should give investors some solace that the U.S. economy is in a strong position to withstand this black swan event.”

“While it may be true that the jobs report isn’t stopping the current stock market slide, had the jobs report been negative the market would surely be falling more precipitously,” he added.

Stocks Plunge, Bonds Rally

U.S. stocks opened sharply lower on Friday, as the global tally of coronavirus infections surpassed 100,000 and jittery investors took cover in perceived safe havens such as bonds and gold.

At 10:13 am EST on March 6, the S&P 500 (SPX) had fallen by 87.9 points, or 2.91 percent; the Dow Jones (DJI) had dropped by 710 points, or 2.72 percent; and the Nasdaq Composite (IXIC) was down by 237.4 points, or 2.72 percent.

U.S. Treasurys, considered low-risk assets, were beneficiaries of the flight to safety, with the benchmark 10-year note hitting a new record low Friday.

Epoch Times Photo
Table showing Wall Street’s big three stock indexes—S&P 500 (SPX), Dow Jones (DJI), and Nasdaq (IXIC)—along with the VIX volatility index, and the U.S. 10-year and 30-year Treasurys, at 10:13 am EST on March 6, 2020. (TradingView)

The so-called “Wall Street fear gauge,” or the VIX volatility index, shot up by over 10 points, or 25.29 percent, to 49.64.

A reading above 31 on the VIX is considered a sign of major uncertainty and investor fear.

Still, history suggests that a big spike in stock market volatility may be followed by a significant equities rally.

“When it comes to the VIX, history is not very kind to the bears. If you look at equities after the VIX has spiked over 40, you find an average 12-month return of almost 30 percent,” said Allen Sukholitsky, chief macro strategist at Xallarap Advisory.

“In addition, the worst return has not even qualified as being in bear market territory and the best return has been almost 70 percent,” Sukholitsky told The Epoch Times in an emailed statement.

“The caveat here is that this performance took place either well before a recession, near the end of a recession, or after a recession,” he added. “Whether or not history repeats, we continue to advise investors to manage for risk, not return. Better early than late.”

Trump Signs $8.3 Billion Coronavirus Spending Bill

President Donald Trump on Friday signed a more than $8 billion spending bill to counteract the fallout from the spread of the coronavirus, injecting funding into developing a vaccine and other prevention measures.

The $8.3 billion aid package was agreed to earlier this week by Senate and House appropriations managers before it was passed in the two chambers of Congress.

“In situations like this, I believe no expense should be spared to protect the American people, and in crafting this package none was,” said Appropriations Committee Chairman Richard Shelby (R-Ala.) in a statement to media outlets. “It’s an aggressive plan, a vigorous plan that has received an overwhelming positive reaction.”

Trump, Coronavirus Task Force Members Meet With Pharmaceutical Executives
President Donald Trump (R) leads a meeting with the White House Coronavirus Task Force and pharmaceutical executives in Cabinet Room of the White House in Washington, on March 2, 2020. (Drew Angerer/Getty Images)

Markets Expect More Rate Cuts

On Tuesday, the Federal Reserve slashed its benchmark federal funds rate by half a percentage point in an emergency measure meant to shore up confidence in the economy.

Fed Chair Jerome Powell said in a press conference that the central bank acted on information of a “material change” in the economic outlook, the Fed’s oft-cited condition for slashing rates.

“The spread of the coronavirus has brought new challenges and risks,” Powell said, adding that “the outbreak has also disrupted economic activity in many countries and has prompted significant movements in financial markets.”

Epoch Times Photo
Federal Reserve Chair Jerome H. Powell announces a half percentage point interest rate cut during a speech in Washington, on March 3, 2020. (Mark Makela/Getty Images)

Central banks across the globe, including the Bank of Canada, the Reserve Bank of Australia, and the Malaysian central bank, have eased this week, with others expected to follow soon, including the Bank of Japan.

The interest rate futures market is now pricing in a 100 percent chance of another Fed rate cut in March.

Reuters contributed to this report.

Follow Tom on Twitter: @OZImekTOM