Only some of roughly 36 million jobs lost since the beginning of the lockdowns designed to protect hospitals from surging cases of COVID-19 patients are not coming back in a V-shaped or a U-shaped recover. The University of Chicago estimates that 42% of the recent layoffs will result in permanent job losses.
“We find three new hires for every 10 layoffs caused by the shock and estimate that 42% of recent layoffs will result in permanent job loss,” writes Jose Maria Barrero, Nick Bloom and Steven Davis from the Becker Friedman Institute at the University of Chicago in a working paper titled “COVID-19 As A Reallocation Shock” published on May 5.
Most of those workers are now surviving on a record level of unemployment insurance. That means that some workers, including part-timers, are actually making as much or more from unemployment than if they were collecting a paycheck. But that stimulus is not permanent, unless the Democrats get away with their universal basic income policy to give people around $2,000 a month — a nice subsidy to corporate payroll.
New initial claims came in at 2.98 million on Thursday, lower than the 3 million-plus in previous weeks, but not much less. Jobless claims also beat consensus estimates. Barclays expected 2.5 million.
“It’s worse than it looks,” says Michael Reynolds, an investment strategist for Glenmede in Pennsylvania. “The labor force participation rate is even worse.”
Investors have been betting on a quick recovery once states lift their quarantine orders. But betting on when that will be is becoming increasingly difficult.
“There’s no reasonable way to handicap this. If we were in a recession and you were asking me how long would it take to come out, I could handicap that pretty well just looking back at history. I can’t do that with this,” says Crit Thomas, global market strategist for Touchstone in Ohio. “We are operating on a much higher degree of uncertainty than we’ve ever had before. Why is the market acting as healthy as it appears to be? It’s only favoring industries that are benefiting from this. If you look three to five years out and try to pick up stocks that are cheap, it might be okay. Then again, I might end up buying something for the value of it and end up buying companies that are not going to survive this,” he says.
Investors are convinced that as a result of the job-crushing pandemic, people will likely want to build up precautionary savings going forward, spending less. Business will want to ensure sufficient liquidity buffers.
“Banks are already increasing loan-loss provisioning. Uncertainty points to low investment,” says Neil MacKinnon, an economist for VTB Bank in the U.K.
The restoration of a possible relocation of global supply chains takes time, and responding to a post-pandemic environment will take us into 2021.
More government intervention — such as the Fed’s promise to manage the yield curve — and a more online economy are likely outcomes. Investors can pick their winners from those two certainties.
Billionaire George Soros said this week that there was no way to go back to a globalized economy post-pandemic, adding that he worries about the survival of the Eurozone and escalating U.S.-China tensions.
