29 June to 5 July: Stronger headlines, but weaker underlying jobs numbers in the US

The US jobs report for June was stronger than market expectations, as non-farm payrolls indicated that the economy added 4.8 million jobs in the month, whilst the unemployment rate declined to 11.1%, from 13.3%. Although the headline datapoints were stronger than for what the broad market was positioned for, the overall state of the US labour market remains in one of the weakest spots on history. We believe investors overlooked the facts that 31.5 million people were claiming unemployment benefits in June, whilst the level of employment was 15 million lower than in February – before the pandemic. Furthermore, it is highly likely that the headline unemployment rate substantially understates the actual extent of joblessness in the US, since to be classified ‘officially’ unemployed by the statistics, one needs to be ‘actively’ looking for work, whilst there is no need for that to claim unemployment benefits. In our opinion, it is concerning that some soft indicators (for example the ISM index) signal further weakness in the jobs market and suggest job shedding contraction would continue. And, the fact that many states have backtracked on the idea of re-opening their economies and imposing lockdowns again will probably mean a delay in the start of a sustained recovery in employment.

What the broader stock market in the US seems to ignore – for right or wrong – is the fact that we are still at the early stages of this crisis, which is different in nature than previous ones. Therefore, we arrive at the conclusion that the economic headwinds and longer-term structural shifts that may shape specific industries (with hospitality and transportation being some of the obvious examples) are not being taken into account by the market.

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