(Source: Momentum Global Investment Management)
26 July 2020
Source: Bloomberg & Momentum Global Investment Management
What this chart shows
The chart shows the US monthly unemployment rate from 1960. The reading of 14.7% in April 2020 was the highest recorded unemployment rate in the US since the Great Depression of the 1930s. This is due to the impacts of Covid-19 on the labour market as large swathes of the economy were shut down to slow the spread of the virus. Even though unemployment has ticked lower in May and June (beating expectations in both months, particularly in May when it was forecasted to increase further to near 20%), it remains greater than the peak of 10% during the global financial crisis.
Why this chart is relevant
We must remember the consumer is the engine of the US economy (consumption accounts for approximately 70% of GDP) - a weak consumer means a weak economy. The $600 per week federal unemployment benefits scheme (paid on top of benefits paid at the state level) is due to expire at the end of this month, having been introduced in March, meaning approximately 25 million people who currently receive the weekly income boost will no longer. Talks began this week to determine the details of the latest stimulus package. Insufficient further stimulus will be damaging, particularly if lockdown restrictions are reinstated, thus making it hard to expect a significant decrease in unemployment in the months ahead. And of course, later this year we have the US presidential election. Labour market dynamics over the next few months will weigh significantly on the US electorate’s perception of President Trump’s handling of the coronavirus crisis.
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