President Donald Trump says the positive job report on Thursday shows that the US economy is “bouncing back”
Slow down your enthusiasm.
The major recovery from the steepest job losses in US history has begun to roar, with a record 4.8 million jobs to the economy in June, after 2.7 million gains last month. But the comeback is likely to slow down significantly in the coming months, economists say.
The job will be more subdued going forward
“We expect the recovery from here to be much more uneven and the job gains will be more subdued,” says economist Michael Pearce of Capital Economics.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, believes that it is even possible for wages to fall in July and August.
The biggest stumbling block is that 21 states, largely in the south and west, have paused or reversed their opening plans in the middle of a peak in the fall. Many opened earlier than the health guidelines dictated. New American coronavirus cases passed 50,000 this week, a record of one day.
Arizona has closed down bars, gyms, theaters and water parks. Southern Florida and California close some beaches for the July 4th weekend. Texas stopped bars, limited restaurant capacity and banned optional operations.
Even areas with falling cases and hospitalizations are scaling back for fear of infection from the new hot spot states. New York City Mayor Bill DeBlasio, for example, has delayed indoor food indefinitely. And regardless of government restrictions, many consumers avoid public places when they learn about infectious disorders.
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The disadvantages appear in some real-time data. Kronos, which tracks worker shifts, says growth in that metric dropped from 9% in May to 6% in June, with shifts falling in Florida, South Carolina and Illinois in recent weeks. The hours worked by small businesses have been planning in recent weeks after rising steadily since mid-April, and that trend is likely to continue or worsen, according to Homebase, a scheduling software provider.
And Open Table has registered a sharp decline in restaurant reservations in the Houston area, notes Diane Swonk, chief economist for accounting firm Grant Thornton.
“It won’t be long before companies in the most severely affected areas are forced to close, at least temporarily,” she says.
State aid goes dry
There are other factors. Some of the millions of small businesses that received forgivable federal loans as long as they retained or re-hired employees can terminate workers now that the funds have dried, according to Oxford Economics. The so-called payment protection program has also likely highlighted employee redundancies that would have occurred in recent months, Barclays said.
Some companies, meanwhile, permanently cut ties with workers after waiting several months to evaluate the economy. In June, 35% of officially reported layoffs in California were permanent, more than twice the May level, Oxford notes.
These trends will make it even tougher for the economy to recover historic, crisis-induced job losses. The 7.5 million jobs recovered in May and June represent just one-third of the unmatched 22.1 million that were postponed in March and April, leaving total US employment 14.7 million jobs below the peak before the pandemic.
Unemployed claims are still high
The initial unemployment claims – a rough measure of redundancies – have remained stubbornly high, totaling 1.4 million weeks ending June 27 and topping an overwhelming 48 million over the past 15 weeks. Many, however, also reflect birds and reduced hours during extended eligibility for unemployment benefits.
A less concrete factor is corporate confidence. The recovery has largely been driven by companies that have had redundant employees back as government restrictions have diminished. As hiring declines, the gainful job will depend more on new hiring as companies expand or fill open spaces left by workers who quit.
Tom Gimbel, CEO of LaSalle Network, a Chicago-area staffing company, says such hires partially recovered from the depth in April but have remained low. Before the pandemic, many companies aggressively hired new sales reps and converted temporary contractors into permanent employees – a sign of a bullish view.
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Both of these activities have remained subdued, says Gimbel.
He notes that companies are unsure whether consumer spending will hold up after improved unemployment benefits and other government support expire, he says, “There are these big unknowns.”
Swonk says that’s why it is important for Congress to approve a new stimulus measure.
Some are more true. While coronavirus cases have spiked, they have greatly affected young people who are less vulnerable to serious illness, and deaths in states such as Texas and Florida have remained low, says economist Jacob Oubina of RBC Capital Markets.
If these trends hold, he says, “You may be at the other end of (state) closures when you come to the employment report in July.”
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