The United States’ job creation is one of the most-watched economic releases in the world due to it being part of the Fed’s dual mandate of price stability and maximum employment. Throughout the month, various economic releases offer information about the labour market – it is the trader’s job to put them together to form an opinion about the evolution and what the Fed is going to do next.
Yesterday, the Unemployment Claims and Continuing Claims in the United States revealed that last week America added another 1.5 million people to its unemployment benefits list – a staggering number by all accounts.
The Good and the Bad About Yesterday’s Unemployment Claims
The positive thing about yesterday’s claims is that, while remaining above one million a week, the number slows down. If we compare it with the 6.8 million unemployment claims in March, the worse week on record, yesterday’s number is certainly an improvement.
However, that is hardly a reason to celebrate. When people lose their job by the million every week, it is difficult to talk about an economic recovery, not to mention forecast when it will occur.
Moreover, the slow and unsteady improvement in claims comes in sharp contrast to the optimism regarding the V-shape recovery. Rehiring and new hiring should outweigh ongoing layoffs – something that is simply not happening.
Continuing claims are holding above twenty million, sitting somewhere between declining and plateauing. The lack of consistent recovery in continuing claims signals a weak labour market recovery, with implications for further job-related data.
The May NFP report suggested a strong recovery, but what the week-by-week data shows is far from an optimistic picture. As traders are forward-looking and using the economic data to figure out what the central bank will do next, the Fed will keep its easy stance and will do more of it should the labour market remain the same.
The fear is that if this is happening in the largest economy in the world, the rest of the developed world is likely to experience a similar scenario. Moreover, the implications are that the recession created by the COVID-19 pandemic can easily transform into economic depression if it persists for much longer.
If we consider that this is an election year in the United States (i.e. Presidential election is due in a few months), the monetary and fiscal picture complicates even more. And so does any forecast about what the USD will do next.