As a result of the global shock caused by the coronavirus (Covid-19) and the measures to contain the outbreak, sectors with a significant impact on employment gains in the US, the world’s largest economy, have taken a major hit. In addition to the limitation of global import and export activities, with foreign demand falling sharply, the contraction of the manufacturing sector, as well as the strict quarantine measures and concerns for the future, household consumption was negatively affected. As a result of the effective damage, the service sector took, the US economy reached record unemployment.
***Based on preliminary data.
The strong decline in manufacturing and service, the locomotive sectors of the economy, was revealed by data released by IHS Markit, a London-based global information provider, especially in April, when restricting policies imposed by public authorities were maximum. The contraction of these sectors, which had a significant effect on the study of economic activity during this period, was decisive in the increase in the number of unemployed in the United States. As a matter of fact, weekly jobless claims announced by the Ministry of Labor and the National Employment Report published by the ADP Research Institute showed the periodic increase in the number of unemployed at the earliest.
In addition to the jobless claims, which showed a record weekly rise in April data, private sector employment in the United States declined by 20.24 million during this period alone, according to the National Employment Report, indicating the largest unemployment rate of all time. As a result, the unemployment rate rose to 14.7 percent in April in the United States, which had its lowest unemployment rate in 50 years until a few months ago, while nonfarm payrolls, which indicate the change in the number of people working outside the agriculture industry, declined 20.5 million.
Labor Market Recovers
Due to the devastating damages caused by the coronavirus pandemic in the economic context, the economic activities reopened in May after the production rate of the pandemic was brought under control in May, in the world’s largest economy, which is predicted to have had the hardest times since the Great Depression, and thus restricted the labor market losses. In the US economy, which remained closed for a little more than 2 months, nonfarm payrolls increased by 2.5 million in line with the demand for labor, which emerged after the production and service sector relaunched, while the unemployment rate decreased slightly and reached 13.3 percent. However, it is important to note that fiscal and monetary policies are also an important supporting factor in the recovery of labor activities. In particular, the fact that the US Congress subsidized households and businesses with a historic fiscal package amounting $ 2.2 trillion, as well as the FED’s aggressive monetary expansion to provide plenty of low-cost liquidity, clearly supported the return in the labor market.
As of June, Markit’s preliminary data showed that both the manufacturing and services sector recovered strongly and the PMI indicators reached 50 threshold, signaling that businesses return to their activities and contribute again to employment gains. In addition, while the loss of momentum, which started after the historical rise in weekly unemployment figures, lasted until the last week of June, the National Employment Report for June also indicated a 2.37 million increase in private sector employment.
It is necessary to emphasize that the economic supportive policies implemented by the financial and monetary authorities can also appetize the businesses that are resuming their activities. However, the fact that no effective treatment for coronavirus has been found, it would not be right to expect businesses or investors to turn to an aggressive recovery as well, given that they have concerns for the future.
The dataset will be released today at 14:30 (GMT+2) by US Department of Labor. And we believe that the labor market will continue to recover and the unemployment rate will decrease moderately, and nonfarm payrolls, which are critical for markets, will increase by more than 2.5 million.