Welcome to the Corona Correction Series in association with Refinitiv, I'm your host
Roger Hirst.
Now we've seen an absolutely stunning decline in almost every major macro economic metric
over the last couple of months.
Jobs and personal expenditures in the U.S. have been particularly badly hit.
Now economies are going to recover, but what sort of recovery should we expect?
I asked Jeoff Hall, Managing Economist for Refinitiv, about how he expects the U.S. economy,
and in particular the job market, to perform from here.
Yeah, let's talk a little bit about the April employment situation report that we got on
Friday, May 8th.
We know that the U.S. economy lost an historic 20.5 million jobs in the month of April.
The unemployment rate shot up to 14.4%.
These are historic numbers in an historic pandemic.
And, you know, as much as we think that those were sobering numbers, we think that better
days lie ahead.
And we should start seeing job growth return as early as May.
We don't think that we're going to get back to full employment for at least two years.
Some have estimated it as long as ten years, we're more optimistic than that.
On the surface, the massive job losses in April are completely disinflationary and the
Fed has to guard against the set of disinflation and disinflationary forces and inflation expectations
falling off a cliff.
They've done that already.
We saw the April Consumer Price Index this morning showing a record eight-tenths of a
percent decline in the month of April.
The core rate, historic fall of four tenths of a percent.
Again, we don't expect those numbers to be repeated.
In fact we think that there'll be a smaller than four-tenths decline in May, and smaller
declines in perhaps June, before we start getting higher again.
So if the Fed, as we do, takes the disinflationary forces as temporary, a function of the Covid
pandemic, then there is no long run implication for monetary policy.
So we would not expect the Fed to move toward negative rates based on the short term inflation
outlook, even though that's what the market is starting to price in.
There is one thing that came out this morning, the National Federation of Independent Business
had its Small Business Optimism Index that fell another five and a half points in April.
That brings the two month loss to 13.6 points.
We don't expect further losses, or if there are, they won't be as large as in March or
April.
However, what we're looking at is the likelihood of a jobless or less jobs recovery.
Why I say that is, expectations for the outlook for six months ahead for the economy is quite
good.
That index rose twenty four points in April, to twenty nine, the highest it's been in 18
months.
However, the expectations to hire fell to 1%.
A net 1% of small businesses plan to increase payrolls over the next six months.
That's the lowest in seven years.
So we're seeing increased expectations for the economy, but decreased expectations for
job growth.
That bifurcation is what we're going to call a jobless recovery.
Jeoff is expecting the lows in unemployment and inflation will be made over the next month
or so.
The initial economic reaction was brutal, but the central bank response has been swift.
Demand destruction has put significant downward pressure on inflation.
But Jeoff does not expect to see inflation fall as far as it did during the great financial
crash.
He does however expect the job market to take some time to regain its former level, in what
would be a jobless recovery that echoes the slow rebound in employment that we also saw
after the last crisis.
A slow recovery in employment means that there will also be a flatter trajectory to the recovery
in personal consumption.
Future inflationary and deflationary pressure will therefore depend upon how much of this
economic loss can be offset by the fiscal and monetary accommodation of the U.S. government
and the Federal Reserve.
The willingness of policymakers to do yet more could be the defining factor in how quickly
the macro data picks up from here.
We'll see you later with another update.