US: Without a significant recovery in demand, jobs improvement cannot be sustained – ABN AMRO

Bill Diviney, Senior Economist at ABN AMRO, points out that without a significant recovery in demand, the labour market improvement seen in the latest US jobs reports, cannot be sustained over the medium term.

Key Quotes: 

“The non-farm payrolls report last Friday was a dramatic surprise to the upside, with jobs gaining by 2.5mn in May, compared to consensus estimates for a 7.8mn fall (ABN AMRO: -5mn) (...) The main surprise in the data was in the timing – we had forecast net job gains to start in June rather than May, and the weekly jobless claims data had also suggested a continued fall in May.”

“The fact that workers seem to be returning to payroll more quickly is certainly positive, and essentially brings forward somewhat the recovery in the labour market we had already penciled in. Our key concern was (and remains) that the longer workers were displaced, the more likely temporary layoffs would become permanent. However, it is unfortunately still very likely that a significant number of current furloughs become permanently laid off. This is because the reopening process will continue to be gradual, and it is likely that capacity restrictions in the hospitality sector, and disruption to tourism, will persist for much longer. As a base case, we continue to expect around half of furloughed staff to lose their jobs permanently, although there is of course enormous uncertainty on what the precise number will ultimately be.”

“Without a significant recovery in demand – which requires a significant further easing in covid-19 lockdown restrictions – the labour market improvement cannot be sustained over the medium term.”