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U.S. labour market pains intensified last week as companies continued to shed jobs although economists have warned that losses could intensify if a second wave of coronavirus succeeds in stifling the economic recovery in some states.
New welfare claims were 1.48 million last week, according to the latest Department of Labor report, down only modestly from an upwardly-revised 1.54mn and disappointing a consensus that looked for a fall to 1.32mn.
"It is the 14th consecutive week of claims above 1 million with today’s figure still more than double the worst number recorded during the global financial crisis (665,000 on 27 March 2009)," says James Knightley, chief international economist at ING.
Thursday's figure continues a multi-week trend that's pointed toward a greater and more prolonged contraction in employment than the v-shaped rebound that financial markets had assumed, although the report also appeared to offer a glimmer of light at the end of the tunnel.
Continuing unemployment claims fell by 767k to 19.52 million, from a downwardly-revised 20.28 mn in the prior wee. This is notable because it's the level of ongoing welfare claims that impacts the official unemployment rate reported by the Bureau of Labor Statistics.
"This relates to the fact that Florida and California only report numbers every two weeks rather than every week, so we wouldn’t over emphasise today’s improvement," Knightley says.
The strength of the upward trend in continuing claims has led some economists to doubt the message given off by the May non-farm payrolls report, which had the U.S. economy creating 2.5 million new jobs that month, confounding market expectations for a net -7.7 million jobs to be lost.
The unemployment rate was also said to have fallen from 14.7% to 13.3%, although many economists have handled the data with care and are unconvinced that Thursday's figures mark the beginning of a downtrend in either new claims or the continuing unemployment number.
"Unadjusted claims in Arizona jumped 31.8% on the week and Pennsylvania claims rose 7.6%; both states report their numbers before the official data. New Covid cases are rocketing in AZ, but they’re rising in PA too. The danger now is that claims rebound in other states where infections are rising rapidly, and people are starting again to stay away from restaurants and malls," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The U.S. recorded what was its second highest daily total of new infections on Wednesday as outbreaks in Arizona, South Carolina, Florida, Utah and a growing line of others saw authorities in New York, New Jersey and Connecticut impose 14-day quarantines on travellers from some parts of the country.
Some describe the above U.S. states as seeing a second wave of coronavirus while others see the first wave growing after containment efforts were all but abandoned too early in the process.
America did not contract the coronavirus until mid-March but by April 16 the White House had set out plans to enable states to reopen according to their own risk assesments. That announcement came hard on the heels of equivalent plans from Germany on April 15, though many large European countries were either already in 'lockdown' or on the verge of it at the time when the pneumonia-inducing virus was only just sinking its teeth into the U.S.
"Our preliminary estimate for next week is that claims will be little changed—that’s bad enough, given that the worst single week after the crash of 2008 was 665K—but our forecast is much more likely to rise than fall," Shepherdson warns. "The recovery across much of the South and West now seems likely to be weaker than we were hoping for just a few weeks ago."
After suffering under a near total 'lockdown' in April hopes had been for a swift economic rebound to begin in May and culminate with much of 2020's lost output being recovered by the end of 2021.
Data available for last month give credence to that idea, but more recent developments including the trajectory of U.S. infection numbers suggest the recovery is at risk.
White House officials have said they won't close down the economy again to contain the virus but in that respect at least, they're in office and not power because individual states are largely responsible for those decisions.
But even in the absence of government actions to restrict movement, the recovery could still be stifled because consumers are their own agents and some at least might take to shutting themselves away again if rising infections shake confidence in the ability of authorities to contain the disease.
U.S. GDP already fell by -5% on a quarter-on-quarter basis, the Bureau of Economic Analysis confirmed Thursday, although some economists see the second-quarter decline in the double-digits.
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