Second Wave Concerns in Labor Market
In the United States, the world’s largest economy, economic activities opened in the second quarter of the year with the control of the rate of infection of the novel coronavirus (Covid-19) were beginning to repair the devastating damage left behind by the outbreak. At the same time, most of the restrictive measures to limit the outbreak were gradually removed. However, due to the fact that there is currently no effective vaccine against Covid-19 as of the third quarter of the year, the rapid loosening of the measures applied has opened the door to the second wave of Covid-19 in the United States. The number of cases approaching 5 million in the United States and the unforeseen peak of the cases, especially in July, which saw record case growth and casualties on a daily basis, reinforced the downward risk layer in the economic outlook.
Manufacturing and non-manufacturing (construction, service) production, the locomotive sectors of the economy, declined sharply, especially in April, as a result of concerns about the future of businesses due to the Coronavirus outbreak, the supply shock that followed the crisis, as well as the limitation of import and export activities. Data from the Institute for Supply Management (ISM), which was followed by the markets as the performance of the sectors that contributed the most to the employment gains, also revealed this contraction.
In the earliest indication of the labor market during this period, jobless claims issued by the Department of Labor rose to 6.87 million, reaffirming an all-time record. The number of unemployed approached 40 million in April, and the unemployment rate peaked at 14.7 percent, following the sharp decline in labor demand after jobless claims remained high for about 8 weeks.
In April, in the world’s largest economy, which is predicted to have had its most difficult times since the Great Depression of 1929, economic activities began to reopen in May and prevented losses in the labor market. In the US economy, which remained closed for about 2 months, as a result of the labor demand arising from the resumption of manufacturing and non-manufacturing sectors, nonfarm payrolls increased by 7.3 million in the following months, while the unemployment rate decreased moderately to 11.1 percent.
Economic Recovery Is Weakening
In order to minimize the downside risks posed by the coronavirus epidemic on the US economy, the Fed supported the cash flows of businesses with monetary and financial practices, as well as lowering the policy rate. And the labor market, which returned from the bottom in April, recovered strongly in May and June, as the financial authority also contributed to employment through a large budget expansion, especially through the direct transfer method. But the cautious handling of manufacturing and non-manufacturing manufacturers, due to the strengthening of the second wave of the Covid-19 outbreak in the United States in the second half of the year, undermined the recovery in the labor market. Looking at the ISM data, it will be possible to observe that the PMI data, which indicates a monthly expansion by overcoming the threshold value of 50 with a 20-percent-rise in June, slowed the growth rate in July compared to the previous month. In addition, the loss of momentum that started after the historic rise in weekly unemployment figures was more controlled in July, while the National Employment Report published by the ADP Research Institute indicated that private sector employment increased by 167 thousand in July after a 1.5 million increase in June, weakening the recovery in the labor market.
Considering the data set to be published today at 14:30 (GMT+2) by the US Department of Labor, within the framework that the labor market will continue to recover its losses more slowly, we believe that the unemployment rate will continue to decrease to 10 percent and non-farm payrolls, which is the most important indicator of the labor market, will increase towards 1 million.