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As the U.S. slowly reopens, employment figures improve

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For the past few months, markets have seen employment figures that have been dreary. That said, as lockdown measures are being lifted and people return to work, it is expected that the employment picture should get better. In fact, the June jobs report showed the economy added 4.8 million new jobs and the unemployment rate dropped to 11.1 percent.

The fall in jobless rate from 13.3 per cent in May was better than expected but was based on data collected in the second week of June – preceding a spike in infections that has hit several large U.S. states since then and caused some authorities to restore restrictions on activity.

According to the Bureau of Labour Statistics, the job gains were broad-based, with leisure and hospitality recovering 2.1m positions, retail restoring 740,000 people on payroll, and manufacturing adding 356,000 jobs.

Leisure and hospitality jobs rose by 2.1 million or 21 percent. Employment in food services and drinking places rose by 1.5 million over the past month, which followed a 1.5 million gain in May; employment is down by about 3.1 million since February. This sector has been one of the hardest hit by social distancing. However, the need for social distancing after the economy reopens could make it difficult to replace all of the jobs lost during the pandemic.

Retail employment rose by 740,000, which followed a gain of 372,000 in May. Several retailers temporary closed physical locations in March to help stem the spread of the pandemic. They are slowing reopening stores, spurring gains in employment activity. Education and health services employment increased by 568,000. Offices for dentists, physicians and other healthcare practitioners are opening up, so jobs are rising in those sectors.

Manufacturing jobs increased by 356,000, yet is down over 750,000 since February. Job increases pursuant to durable goods and motor vehicle components urged the manufacturing sector. After the economy reopens, it is more anticipated that consumers will focus on essential items rather than durable goods; this could create long-term headwinds for manufacturing jobs.

The unemployment rate during the month was 11.1 percent, down from 13.3 percent in May and 14.7 percent in April. Throughout the Trump administration and for much of the Obama years, the unemployment rate was lower than the 5 percent mark – usually considered as full employment. Unemployment that low usually triggers runaway inflation. However, heightened inflation never materialized, allowing the Federal Reserve to maintain low rates. Now, the Fed wants to keep the economy from spiralling into another deep recession.

In addition, the labour participation rate was 61.5 percent, up from 60.8 percent in April. There were 100.3 million civilians not in the labour force, up from 95.9 million in the year earlier period. This many people outside the workforce could explain the worker fear and social unrest markets are witnessing throughout the U.S.

Furthermore, financial markets will likely remain elevated. The Fed promised to provide liquidity to the bond market to ensure credit would continue to flow to corporations. This helped stop the free fall in financial markets. Several retailers have since tapped the credit markets to shore up liquidity while stores have been temporarily closed.

That said, the Federal Reserve Chairman, Jerome Powell, recently warned on uncertainties regarding a potential economic recovery.

In prepared remarks to the Senate banking committee, Mr Powell struck a cautious tone about America’s economic prospects, in line with most Fed officials’ expectations that they will have to keep interest rates close to zero until at least the end of 2022.

Hence, it is expected that financial markets remain volatile over the next few months. Poor corporate earnings could be offset by more monetary stimulus and positive news about potential vaccines.

For years, President Trump has had to both keep America safe and grow jobs in order to get re-elected yet the pandemic has changed the narrative. Until there is a vaccine, it seems that the U.S. economy may not recover anytime soon. The death toll from COVID-19 continues to rise, and President Trump recently implied Americans may have to learn to live with the pandemic. Helping Americans co-exist with COVID-19 could be considered a win for the President come November.

This article was issued by Maria Fenech, Credit Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.

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