The U.S. Gained 2.5 Million Jobs in May, Trouncing Expectations for Millions More Job Losses… The unemployment rate was expected to jump from 14.7% to 20.5%, but instead it dropped to 13.3%.
What it means— Apparently, no one has a good handle on what’s going on in the U.S. economy. The number was far outside the rosiest expectations and had to include another 1.88 million initial jobless claims last week. But as the old saying goes, “The stars might lie, but the numbers never do.”
We’ll take the report at face value and be happy that more people are going back to work. It still leaves us with unemployment 30% higher than at the worst of the Great Financial Crisis and at the highest level since the Great Depression. Now that we’re adding back jobs and easing the rolls of the unemployed, how quickly can we recover, and where will the gains plateau?
Over the weekend, we learned that the Labor Department admitted to counting 4.9M laid off workers as employed. HUH? If the data was corrected the 13.3% causing Friday’s stock market celebration should have been 16.1% for May and 19% in April. Admitting the error and correcting it would look politically motivated, therefore, pretend the department knows what is best.
Coronavirus Shutdown Meets Protests Over George Floyd’s Death… Just as cities and states were reopening after the economic lockdown, protests over Floyd’s death turned violent, shutting down commerce in many large cities.
What it means— Protests around the country appear mostly peaceful during the day, but then rioters and looters show up after dark, in cities from Los Angeles to New York. They are vandalizing property, looting and then destroying stores, and setting buildings and cars on fire. The violence is hindering businesses in these areas from reopening and setting many businesses back taking further financial toll on business owners.
Factory Orders Down 13% in April… Factory orders fell a bit more than expected in April, after dropping 11% in March.
What it means—The combined 24% drop in factory orders during April and March shows how far we have to go to recover to pre-shutdown levels. Orders for non-defense capital goods, a proxy for business spending, dropped 6.1%, and non-durable goods orders fell 9%. The numbers for May also should be down a bit, but by the time they are released in July, no one will care. It’s all about the speed of reopening and what happens with employment.
European Central Bank Pledges Additional $600 Billion to Recovery… The ECB increased the size of its Pandemic Emergency Purchase Program (PEPP) from $750 billion to $1,350 billion.
What it means— It’s a big number, but it’s a side show. Bond investors took heart when the ECB pledged trillions of euros in purchases, but the world is encouraged when the countries of the euro appear to gather closer together. It’s all about the budgets.
For the moment, the countries of the euro are in a monetary union and enjoy the free flow of capital, goods, and people.
Southern European countries want more. They want the EU to issue bonds backed by all countries and to use the funds to support countries hardest hit by the pandemic. This would mean direct support, a transfer of money from wealthy northern countries to countries that didn’t manage their finances well in the 2000s, ran up huge deficits during the Great Financial Crisis, and have no path toward an economic recovery after the pandemic. Here’s looking at you, Italy.
Germany and others have dismissed this idea out of hand in the past, but they’re wearing down. If the euro falls, or even if just some of the weaker countries leave, then it would make the currencies of the remaining countries stronger, which would make their exports more expensive.
The Germans are more likely to give the Italians cash than to make BMWs more expensive to foreign buyers.
Mall Operator Simon Properties Sues Gap for Missed Rent Payments of $66 Million…Gap, Inc., also owns Banana Republic and Old Navy. Commercial real estate company and mall operator Simon Property Group claims the retailer owes $66 million in rent and other fees for April, May, and June. It’s likely that this is just the first of many high-profile legal fights over missed rent, as the retailers were forced to close their doors during the pandemic shutdown.
But is it a force of nature? The shutdowns were decided upon and enforced by government authorities. They weren’t caused by floods or earthquakes. That question will dominate civil courts for several years.
Data supplied by HS Dent Research
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What do you do, sir?” ~ John Maynard Keynes
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