While public health concerns continue to escalate due to a surge in COVID-19 cases in many parts of the country, last week’s jobs report and new manufacturing data suggest that the worst of the economic impact may be behind us. This is further evidence that the economy is healing although there may be a long way to go before growth returns to pre-crisis levels. Although it’s important to understand what recent data tell us about the recovery taking shape, investors should continue to focus on the long run rather than short-term headlines.
The latest jobs report showed that 4.8 million Americans returned to work in the month of June. This means that since April, over 7.5 million jobs have been added. These are astounding numbers that require some perspective. During the twelve months prior to the crisis, about 180 thousand jobs were created on a monthly basis or around 2 million jobs per year.
Of course, many of these jobs were the result of businesses reopening and furloughed workers being recalled to stores, factories, construction sites, and more. In June, temporary layoffs fell by 4.8 million people, although there are still 10.6 million waiting on the sidelines across the country. About 588,000 Americans saw their jobs permanently lost, according to the latest data. The hope is that these individuals are able to find new work as more and more cities and businesses come back online.
Many parts of the economy that have been the worst hit are seeing jobs return. The “leisure and hospitality” sector, for instance, gained 2.1 million jobs, a large fraction of the total June payroll gains. In fact, employment increased nicely across the services sector as well as in manufacturing. Other manufacturing data corroborate this with the recent ISM showing that U.S. manufacturing is now expanding again after a steep decline.
There are still 14.7 million jobs that have been lost since February. Weekly unemployment insurance data show that about 1.4 million Americans are still filing new claims each week and 19 million are continuing to receive benefits. And despite the gains in leisure and hospitality, just as with other areas hit by social distancing, that sector is employing 4.8 million fewer people since before the crisis.
It’s easy to get lost in these numbers and, two months after the worst of the economic impact, they are still of historic magnitude. What do they tell us about where we are and what lies ahead?
First, most investors clearly understand why all economic data collapsed in March and April. After all, the nationwide shutdown affected all aspects of everyday life from going to grocery stores to dropping kids off at schools. What is difficult to ascertain and appreciate is the sudden rebound in some economic activity. It is in this sense that, for some areas, this is a rebooting of the economy rather than a long, protracted recovery such as after the 2008 financial crisis.
Second, although this is true in aggregate across the economy, there are many areas that may take years to recover – if they do at all. Restaurants and retailers will be forced to operate at a fraction of their capacity. Parts of the country that are seeing a spike in COVID-19 cases may have to delay plans to reopen. Business activity may simply move at a slower pace without face-to-face meetings and other collaboration.
Ultimately, investors should continue to focus on the future and on the light at the end of the tunnel. After all, markets are forward-looking – one important reason that they have rebounded so strongly since March. Although there will likely be more market volatility and economic uncertainty ahead, staying disciplined is still the best way to manage a portfolio as we emerge from this crisis.
Here are three charts that put recent economic data in perspective:
1. 4.8 million jobs were recovered in June
Total Jobs Created Since 2000
Find this chart under “Labor Market”
4.8 million jobs were added in the month of June, bringing the two-month total to 7.5 million. This chart shows how quickly these jobs have been regained compared to the past two economic recoveries – but also highlights how quickly over 20 million jobs were lost. These data show that a recovery is underway, although it will take time to return to pre-crisis levels.
2. Unemployment has fallen as well
Find this chart under “Labor Market”
The unemployment rate also fell in June to 11.1%. This is far better than economists’ worst fears of unemployment of over 20% for an extended period of time. Still, we are above the peak unemployment rate during the 2008 financial crisis of 10%. Over 19 million Americans continue to receive unemployment benefits each week.
3. Manufacturing activity is recovering
Global and Economic Activity Indices
Find this chart under “Global Economics”
While the jobs report shows positive trends in many hard-hit industries such as leisure and hospitality, other data confirm that manufacturing activity is getting back on track. The U.S. manufacturing ISM index is now above 50, meaning that economic activity is once again expanding. Thus, while it will take time to return to the levels last reached as recently as February, these are positive signs nonetheless.
The bottom line? The economy is beginning to recover although it will take time to fully heal. Investors should continue to look out beyond the next year to avoid focusing too much on short-term headlines.