Published: August 12th, 2020
The American Economy added just 1.8 million jobs in July 2020. It is a positive step but not comparable to the impressive performance of May and June. The new data is insignificant to an economy that is still 13 million jobs down from pre-pandemic times.
The U.S. economy has added almost 2 million jobs in July 2020. While the data represents a significant downturn from the impressive performances of May and June, it is the third straight month that the economy has added jobs since the spring lockdowns that wiped more than 20 million jobs off the market.
Though the jobs figure is considerably low, it exceeds the number that economists foresaw. Compared to the 4.8 million jobs that the economy created in June, the July figure represents more than a 50% slump. The data, notwithstanding, the unemployment rate has dropped to 10.2% from the all-time high of 14.7% in April 2020.
Further, the figures released by the Bureau of Labor Statistics are still higher than the 10% figure recorded during the height of the global economic crisis of 2008. While the report had both good and bad bits, it leaves economists with a hard time trying to grapple with the unusual behavior of the labor market during these unprecedented times.
Washington Center for Equitable Growth’s director for labor market policy, Kate Bahn, said that though the economy added more job than expected, the gains are disproportionately part-time workers. She thinks that even though the data implies that more people are coming back to work, most of these jobs pay less and will leave families worse off.
However, the unemployment rate dropped in all the critical demographic groups. Bahn said that despite the overall positive. What is disturbing still is that the rate of unemployment among African Americans remains high at 14.6%.
Based on previous research findings that African Americans are a lot likely to be displaced in case of rampant unemployment, Bahn says that the current situation is disheartening for this demographic group.
Experts unanimously agree that seasonal adjustments based on historical trends that shape the job market are distorting the current jobs data. This situation is especially so because the coronavirus pandemic has hit the market in a manner never experienced before. These experts believe that without the said distortions, the economy added just less than 600,000 jobs in July.
Despite the mixed results and expectations, the market seems robust overall.
According to the data released by Refinitiv Financial Solutions, an online resource that provides insights, technology, and information on global financial markets, the profit growth forecasts for U.S. companies for the next half-decade are intact.
The report suggests that the effects of the coronavirus pandemic on the balance sheets of these companies are a lot likely to be short-lived. The consensus data estimates from Refinitiv show that companies whose shares trade in the MSCI U.S. index. dMIUS00000PUS will likely record an annualized profit expansion of 12%, twice the profit growth that the same companies have recorded in the past five years.
The information is a stark migration from the results of business undertaken between late 2018 and early 2019 when the profit projections fell by more than six percentage points due to fears over the Sino-U.S. trade wars. It is not even comparable to the dip during the global financial crisis from mid-2008 to July 2009 when the profit projection of companies shed some three percentage points.
According to the head of the global asset allocation at Société Générale, Alain Bokobza, the consensus expectations show that earnings will recover steadily from 2021 going forward.
He does not see the impacts of the current pandemic causing havoc past 2020. Saying that the U.S. equity market took about three years to return to the pre-crisis earnings epitome in the past two crises, Bokobza said that the situation is so different now especially because the U.S. shares have edged up almost 40% since the lows recorded in March.
Bokobza said that much of the double-digit returns came on the backdrop of the elaborate monetary and fiscal stimulus packages that the government has rolled out. He believes that the U.S. stocks can deliver a 7% total return in the next half a decade if the markets sustain the double-digit growth.
Analysts warn that the impressive projects may not affect every sector uniformly. Ithaca Wealth Management’s founder and wealth adviser, Matta Fox said that technology and consumer staples sectors would experience a shorter recovery compared to during the 2008 recession.
He said that the reason these sectors may see a faster turnaround is because of the pent-up demand from a large portion of the population that for the most of the first half of 2020, was holed at home with a considerably little spending.
Matta added that the basic materials and energy sectors might not be as lucky. Overall, the U.S. companies had surpassed Q2 of 2020 earnings expectations by almost 25% even before the second-quarter earnings season crossed the middle line.
So far, the businesses in question have recorded as much as 33.6% reduction in their net incomes compared to the same time last year. In all, the markets should expect a W-shaped recovery as opposed to a V-shaped recovery, according to Sam Hendel, the president of Levin Easterly Partners, a New York-based investment firm.
Hendel added that much of the recovery would depend on the speed with which the medical world comes up with a vaccine and its efficacy. The hedge fund manager said that the recession is mainstream because of the behavior change that COVID-19 has initiated. However, he concluded that the markets are lucky there is a robust, well-capitalized banking system in place.
The growth of the American economy that was stalled by the ravaging impacts of the coronavirus pandemic took another hit in July. The month saw a contraction in the number of jobs created. However, experts think that the economy will recover a lot faster this time compared to how it redeemed itself in the previous crises.