Covid-19 crisis insight: “US jobs”

Jeffrey Cleveland,  chief economist at Payden & Rygel, says about 30 million US workers are now laid off, but that a low supply of housing is at least one “saving grace”.

We expect a modest second half recovery. But I wouldn’t think we’re going to be back to pre-crisis levels of total economic output until 2023. 

From the total level of GDP at the end of 2019,we had a big drop in Q1, a big drop in Q2.  Recovery starts in Q3, Q4.  By end year still about 5% below end of last year.  Climbing out of that hole will, I think, take a few years.

Recovery is going to depend on consumer activity coming back.  In places like China that have re-opened, consumer spending is still 20%-30% below pre-crisis levels. So it’s come back but not to anything we’d call normal.  I don’t know if there is a ‘normal’, so I think that argues for a slow pace of recovery.

The next big topic is [US] unemployment.  We have about 30m people laid off in the last six weeks, from very few unemployed workers as of February.  If you assume that all are classed as unemployed, you could get a number for the unemployment rate approaching 20%-22%.

However not all will show up as unemployed, I don’t think. Some  will leave the labour force some will retire early, etc, but I definitely think we see a double digit 10%-20% unemployment rate

Coupled with the hole we have to dig out of on GDP, and high unemployment, I think this means rates are at zero for years. The Fed will keep monetary policy at zero and that’s what’s priced into the bond market right now and I think that’s the right expectation.

The next seven days the [US] focus will be, and should be, on the jobs number.  How high does the unemployment rate go?  The question for next week’s jobs report should be: Of the people who are laid-off or unemployed how many are listed as temporary lay-offs rather than permanent?

Housing – in 2008 there was a lot of supply but in February the US had very low housing inventory.  That may be the saving grace here: no flood of supply on the market.  Prices will not go down as much as they did in 2008.  Although we’ll see a slowdown in sales and a cutback on financing available to purchase financing particularly in the jumbo category.  And that’s going to have a material impact on overall housing market activity in the next few months.

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