Growth challenges are mounting
Overall, while today’s report is certainly better than expected, from a medium-term perspective it is possibly the worst outcome. It doesn’t intensify the pressure on politicians in Washington to compromise on a new fiscal a deal, which means that the US$600/week unemployment benefit that ended last weekend will not be replaced with anything for at least another week, so 31 million people will continue to experience a considerable drop in their incomes at a time when job availability is becoming more scarce.
The August jobs report is going to be worse
The August jobs report is going to be worse as the economic effects of Covid-19 containment measures increasingly bite. There is plenty of evidence suggesting it is resulting in business closures and jobs being lost, be it Homebase’s employment tracking numbers or the Census Bureau’s Household Pulse survey. Throw in July’s big plunge in consumer confidence and the ending of the US$600/week Federal unemployment benefit payment and we have the recipe for a much more challenging environment for growth. We would not be surprised to see a negative August payrolls number (published 4 September) and a negative August retail sales number (16 September).
Time will tell if this is the catalyst for a more realistic assessment of recovery prospects by equity markets. Remember it took three years to recover the lost output following the Global Financial Crisis and the current situation has seen a far deeper economic contraction with little clarity on the efficacy and timing of a potential vaccine. Throw in the prospect of significant structural change in the economy relating to working from home, business travel, retail, commercial real estate etc and we continue to see a bumpier and more gradual recovery process than is currently seemingly being priced.