On the surface, yesterday’s (20 August 2020) US jobless data was disappointing as initial claims unexpectedly increased back above 1m, with a reading of 1.1m for the week ending Saturday 15 August 2020, while the previous week’s reading was revised higher to 971,000.
However, continuing claims came in better than expected at 14.84m, while the previous week’s reading was revised down (which is good news) to 15.48m.
We have previously warned that economic data is likely to be bumpy – and this data reading does clearly highlight that the coronavirus continues to significantly and strangely impact the US economy, in that the US employment market isn’t seeing the ‘V-shaped’ recovery that, for example, the retail sales or the housing market is seeing. As such, we don’t believe that the US economic recovery is stalling: it is more of a minor stumble on the road to recovery.
However, the key question for us is how will the US politicians react? We believe this jobless data clearly highlights that politicians in Washington, from both sides of the aisle, need to stop playing brinkmanship at the expense of hard-hit American workers and agree a new US fiscal stimulus package – especially as failing to provide fiscal support in the face of the recent resurgence in coronavirus cases and the current elevated unemployment levels, could have a significant impact on US swing states (i.e. those that could be won by either the Republicans or Democrats) come the Presidential elections on Tuesday 3 November 2020.
It has been a different story in the UK this morning, with both retail sales and PMI (Purchasing Managers’ Index) data impressively beating expectations following the reopening of the UK economy.
UK retail sales rose 2% in July compared to June, led by ‘non-food sales’ which saw a 10% increase (which includes textile, clothing and footwear, which saw an 11.9% increase) – implying that consumers remain confident about both their jobs and personal finances.
Additionally, UK PMI for August had a hat-trick beat, with the composite reading jumping to 60.3. Services led this advance, rising to 60.1, while manufacturing rose to 55.3. Although some of this surprise can be attributed to the government’s hospitality VAT cut and the ‘eat-out-to-help-out’ scheme, nevertheless, as 50 is the line separating expansion and contraction, these readings not only show that the UK economy is moving in the right direction but is actually recovering very strongly.
Investment Management Team