Signs Of The Economic Apocalypse Are Everywhere.

“The global coronavirus disease led to a notable deterioration in euro area manufacturing sector operating conditions during March”, IHS Markit said Wednesday, lamenting across-the-board contractions in the final manufacturing PMI prints for last month.

“Output, new orders and purchasing all fell sharply, whilst jobs were cut markedly, and supply-side constraints intensified at a record pace”, the color reads. “Confidence about the future sank to a historical low”.

As noted early Wednesday, it’s the same story in Asia and the dour mood will surely be reflected in the US data too. No one is safe.

In Italy, the first country to implement a nationwide lockdown amid a spiraling death toll from the virus, the picture is particularly bleak.

“The downturn in the Italian manufacturing sector continued during March, with operating conditions deteriorating at the sharpest rate since April 2009 amid COVID-19 related shutdowns”, Lewis Cooper, an economist at IHS Markit, remarked. “The Output index contributed considerably to the dive in the PMI in March, falling a record 19.1 points since February, and the rate of contraction the sharpest in nearly 23 years of data collection”, Cooper added. Confidence among firms dropped to the lowest on record.

(IHS Markit)

As bad as March was for factories globally, the services sector was hit harder still and the color accompanying the final non-manufacturing and composite PMIs due later this week will be telling in that regard.

The flash reads on the composite and services gauges for Europe were a disaster, you’re reminded, and market participants will been keen to parse any additional anecdotes.

Additionally, you should note that the manufacturing gauges are likely getting something of an artificial boost. “Even the slide in the PMI to a seven-and-a-half year low masks the severity of the slump in manufacturing as it includes a measure of supply chain delays, which boosted the index”, Chris Williamson, Chief Business Economist at IHS Markit, said of the euro-area gauge. “Supply delays are normally seen as a sign of rising demand, but at the moment near-record delays are an indication of global supply chains being decimated by factory closures around the world”. The headline ISM print in the US suffered from the same distortion.

Signs of the economic apocalypse are evident pretty much everywhere you look.

On Tuesday, for example, Hong Kong said retail sales (which went into a veritable death spiral last year amid violence and intractable social unrest) plunged 46.7% in February.

That was obviously a record dive and it speaks further to the contention that Hong Kong is facing an existential crisis from which it’s by no means clear the city will emerge. I’ve called it a failed state, but I guess failed “city-state” is better. Retail sales have contracted at a double-digit rate every month since last summer, when the protests kicked into high gear. Visitor arrivals to the city fell 96% in February – ninety-six percent.

In Spain, some are now warning of mass insolvencies. “All those who work in non-essential services must remain at home over Easter, but the government says that companies must pay employees in full during that time”, Bloomberg notes, on the way to citing Antonio Garamendi (he’s the chairman of the Spanish Business Associations Confederation and, as you may have heard, he’s irritated by the lockdown protocols) who warns that the “effective ban on firing or temporarily laying off staff could force companies that suddenly find themselves with no revenue to close”.

Duly noted. Obviously, if you have no operating revenue but you’re forced to pay employees anyway, that’s a problem, and potentially means any rainy day liquidity you had squirreled away could dry up in no time flat.

But then again, people are dying in Spain – lots of them.

So, one needs to take into account the government’s responsibility to prevent mass deaths first, and worry about mass insolvencies later. Because while it’s true that the knock-on effects from economic catastrophes can eventually prove fatal (literally) for a variety of reasons (e.g., rising suicide rates), right now the priority is making sure people stop dying from viral pneumonia.

Ultimately, there’s no escaping the fact that efforts to prop everyone and everything up with emergency liquidity lines, bailouts and various financial backstops notwithstanding, there will be no light at the end of this tunnel until the epidemic abates in earnest.

(Deutsche Bank)

The contention – and this has been floated either explicitly or implicitly by any number of people over the past month – that we can somehow make a Sophie’s choice and save the global economy by sacrificing “a few old people”, simply isn’t true. Donald Trump himself came around to that reality this week.

As discussed at length last weekend (see the linked post below), it’s no longer clear that the utilitarian argument (e.g., “The cure is worse than the disease”) is actually a good one. It’s true that COVID-19 isn’t Ebola, or Marburg, but it’s not the common cold either. It is entirely possible that the misery and suffering that would accompany the unfettered spread of this particular malady across nations would more than offset all of the positives associated with putting everyone back to work, reopening entertainment venues, resuming sports leagues, etc.

Trump seems to understand that now. As he said Tuesday, it’s possible the learned behaviors from this experience (e.g., being wary of shaking hands) will persist long after the virus has abated.

That simple observation speaks volumes about the extent to which the utilitarian argument about the economy isn’t tenable. If you’re reluctant even to shake hands with someone, how likely is it that you’d be excited about inserting yourself into the pack-animal waiting line at the Grand Central Starbucks, for example? (If you’ve ever been in that line, around 8:45 AM, you know exactly what I’m talking about.)

And that’s just a trivial example from the US metropolitan experience. Think about this from the perspective of India, and other nations where the population density in certain areas would dictate almost instant super-spreading.

The bottom line is that, for right now anyway, economic activity ain’t possible – to speak colloquially. Business leaders, libertarians and anyone else predisposed to suggesting otherwise will have to accept that.

Read more: Bazooka Stimulus, Buying Time And Virus Utilitarians