K-shape, ADP data, layoffs and bankruptcies

1. Okt. 2020

Since the current week is the week of the US labor market data, let's talk about what is worth and what not to expect from Friday's statistics. Formally, yesterday's data from ADP tunes in a positive mood (+ 749K against the forecast of + 650K), but the real picture is somewhat different.

The jobless claims figures show that there are still many months (at best) to return to normal. The number of people constantly receiving unemployment benefits is 6-7 higher than it was before the pandemic.

One of the consequences of the pandemic and the economic crisis was a sharp increase in the number of bankruptcies and mass layoffs by leading companies. A recent example is Disney's firing of 28,000 employees. With about 6,000 stores closed in retail alone in the US, Disney's numbers are just the top of the iceberg. So it is extremely naive to expect a sharp increase in the number of new jobs against such a background.

The illusion of a rapid economic recovery (the so-called V-shape) is becoming less visible every day (only Trump and the Republicans see it now). It is more appropriate to speak of either the W-form or the K-form. The gist of the latter is that the stock market may be doing well and rich people are recovering relatively quickly, but for others the situation is very different. Since the “others” are millions of low-paid workers, there is no reason to expect a breakthrough in the labor market.

Democrats, meanwhile, continue to try to realize their vision of the economic recovery package. Judging by the position of White House Economic Adviser Larry Kudlow, who was skeptical about the need for such a large package, there is little chance of its approval in the Senate. Still negotiations with Mnuchin are in progress and markets prefer to think that chances are.