US jobs market improving at a slower pace

This week’s purchasing manager indices (PMIs) across the US, UK, Europe and Australia significantly beat expectations. In the US, the composite measure (services and manufacturing) rose from 37.0 to 46.8, in Europe it rose from 31.9 to 47.5 and, in the UK, it rose from 30.0 to 47.6. As BCA Research notes, “the flash PMIs for June confirm the notion that the global economy is experiencing a quick rebound as activity resumes after prolonged lockdowns”.

Of course, technically, being still below 50, this would suggest activity is still contracting in these major economies, just at a markedly slower pace (in contrast to Australia where it actually rose to 52.6). This may seem a little ‘glass half full’. There’s no doubt there are plenty of indicators now pointing to a clear rebound in activity through late May and June, both in Australia and offshore. Last night’s beat for US capex orders (+16% in May after -18% against consensus for +11%) is a good example and a positive sign of a pick-up in activity.

The point is that, while that recovery may look V-shaped in the months ahead, it is likely that a more U-shaped pace will take hold through Q4 and 2021. A hint of that can be found in the labour market data, and particularly in last night’s US weekly claims data. New unemployment claims fell from 1.54 million to 1.48 million, much less of an improvement than the consensus for 1.3 million. As our chart today shows, continuing claims (after spiking) are now coming down only a little week by week. That’s not to say the data doesn’t point to re-hiring…it does. But new flows are continuing, suggesting ongoing economic pressure in some sectors (and the virus outbreak has lifted new claims in some key US states).

So, while there is clearly a ‘V’ evident in the PMIs and other activity data, there is a much slower ‘U’ unfolding in the jobs market. The still present pandemic and threats of reacceleration (as is evident in Victoria and some regions offshore) has the potential to punish some sectors for an extended period (well in to 2021), as reflected in the announcement by Qantas yesterday to lay off 6,000 workers.

US continuing unemployment claims coming down only slowly

Source: Tradingeconomics.com, US Department of Labor

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Scott Haslem
Chief Investment Officer
Crestone

Scott has more than 20 years’ experience in global financial markets and investment banking, providing extensive economics research and investment strategy across equity and fixed income markets.

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