Economic Outlook – 5 July 2020


  • During June, nonfarm payrolls rose by 4.8 million jobs, while the unemployment rate fell to 11.1%. Both were surprises to the upside. While this is certainly another step in the right direction, employment levels remain almost 10.0% below February peak.
  • Initial jobless claims slightly fell to just over 1.4 million for the week ending June 27, a bit higher than expectations. Claims have trended lower recently, but remain frustratingly elevated. Processing issues at the state level, which have led applicants to apply multiple times before actually receiving benefits, may be overstating the numbers. Continuing claims came in at almost 19.3 million. In short, labor market conditions continue to show an improving trend, yet remain well-below pre-pandemic levels
  • The ISM manufacturing index blew past expectations during June, rising to a 14-month high of 52.6. New orders also sharply rebounded, which bodes well for the near-term outlook for the factory sector. While this is clearly welcome news, the surge in the ISM likely reflects the relief about re-opening rather than a full rebound in activity for the sector.
  • Fed Chair Powell and Secretary Mnuchin both appeared before the House Financial Services Committee on Tuesday. While few specifics on additional monetary or fiscal aid were discussed, the committee was reminded that the expanded unemployment benefits would expire at the end of July and additional measures would likely be needed to be taken to support the recovery. Minutes for the June 9-10 FOMC meeting were also released. Officials stressed the need for monetary policy to remain highly accommodative until the economy gets fully back on its feet. Members also commented on the extraordinary amount of uncertainty the economy is currently facing, particularly surrounding the risk of an increase in coronavirus cases as many areas of the country start to re-open
  • With low interest rates an added tailwind, the purchase of big-ticket items picked up. Home buyers were busy inking deals in May, with pending home sales surging a record 44.3% on the month. Contract signings tend to lead closed sales by 1 to 2 months, signaling a strong near-term showing in the latter in the months ahead. Meanwhile, vehicle sales con­tinued to rebound in June (up nearly 6% in June to 13.1 million) albeit at a slower pace than the month prior
  • The positive jobs numbers failed to impress the bond market, with the yield on the benchmark 10-year Treasury note falling back Thursday to end the week modestly higher
  • US stocks recorded solid gains for the holiday-shortened week, helping push the technology-heavy Nasdaq Composite Index to a record intraday high, while the S&P 500 Index touched its best level since June 10. Within the S&P 500, communication services shares were particularly strong, helped by gains in Netflix and video game stocks, as was the small real estate sector. Financial and energy shares lagged. The week closed out the best quarters for the Dow Jones Industrial Average and S&P 500 since 1987 and 1998, respectively. Markets were closed Friday in advance of the Fourth of July holiday


  • Prime Minister Boris Johnson said the government would fast-track GBP 5 billion of spending on infrastructure works to help an economic recovery. More details are expected to be revealed July 8, when UK Chancellor of the Exchequer Rishi Sunak will unveil his plans for the economy, which reportedly include a temporary cut in the value-added tax.
  • Bank of England Chief Economist Andy Haldane said on a bank webinar that real-time economic data showed the UK economy was already two months into a recovery and rebounding faster than expected. “It is early days, but my reading of the evidence is so far this” he said. Although the economy had suffered an unprecedented collapse and unemployment could still derail a recovery, he indicated that he was optimistic.
  • British factories are increasingly planning to lay off workers, a warning sign for the economy as it tries to recover from the coronavirus pandemic, an industry survey showed. Some 46.0% of manufacturers expect to make redundancies over the next six months, up sharply from 25.0% in May, according to sectoral group Make UK which is calling on the government take more measures immediately to support jobs. “Conditions are still very tough for many companies with disruption likely to continue for some time,” said Stephen Phipson, chief executive of Make UK. “This has led some to reluctantly conclude that with demand unlikely to return for some time, if at all, they are moving to the painful choice of redundancy.”
  • The historic slump across British businesses levelled off last month as some of the economy reopened following an easing of the coronavirus lockdown, a business survey showed on Friday.  The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) rose to 47.1 from 29.0 in May, slightly higher than a preliminary reading of 47.0 but still below the 50 threshold for growth.  “Encouragingly, more than one-in-four service providers reported an expansion of new business during June, which was commonly attributed to pent-up demand and the phased restart of the UK economy,” said Tim Moore, economics director at IHS Markit, which compiles the survey.


  • In the eurozone, economic data indicated that the slump continued to ease in June as lockdown restrictions were lifted and shops and businesses reopened. The number of people out of work in Germany rose by a less-than-expected 69,000 to 2.943 million people, Labor Office data showed. The unemployment rate climbed to 6.4% from 6.3% in May. German retail sales jumped 13.9% sequentially in May, much stronger than the consensus estimate of 2.8%. Retail sales rose 3.8% year over year, whereas economists had expected a 3.5% drop.
  • Purchasing managers’ indexes (PMI) for manufacturing in the eurozone continued to show significant improvement with the easing of lockdown restrictions. The June flash manufacturing PMI rose to 46.9 from 39.4, exceeding expectations. Manufacturing in the UK returned to expansion in June, with the flash PMI rising to 50.1 from 40.7. Eurozone inflation quickened to 0.3% in June from 0.1% in May, although core inflation slipped to 0.8% from 0.9%.
  • European Central Bank (ECB) President Christine Lagarde said in a webinar that the worst of the coronavirus crisis might be over, adding that her view was expressed with some trepidation because there could be a second wave of infections. She warned that the recovery would be “incomplete,” as trade is unlikely to return to pre-crisis levels and productivity may be weaker. She also said the crisis might be “transformational.” Some business models will struggle to survive and adapt to the new world, while other firms will be created to address a changed reality, she said. Speaking at an online conference, Isabel Schnabel, a member of the ECB’s Executive Board, said that the economic recovery is likely to be slow, although the central bank could adjust its coronavirus crisis measures depending on how financial markets adapt. She said the eurozone economy is not expected to recover to its pre-coronavirus size until 2022 at the earliest.
  • Italy is preparing to inject a further EUR 20 billion into the economy in July, Reuters reported, citing an unnamed senior government official. As a result, the budget deficit would expand to about 11.6% of gross domestic product from its 10.4% goal. The Treasury declined to comment
  • European stocks rose through Thursday on encouraging news related to the development of a potential coronavirus vaccine and improving economic data. In local currency terms, the pan-European STOXX Europe 600 Index ended 2.11% higher for the first four days of the week. Germany’s DAX Index rose 3.33%, France’s CAC-40 Index added 2.41%, and Italy’s FTSE MIB Index gained 3.11%.


  • The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to a six-month high reading of 51.2 in June from May’s 50.7. The privately administered Caixin survey came a day after China’s official manufacturing PMI rose to a three-month high of 50.9 in June, its fourth straight month of a reading above 50, which signals improving conditions from the prior month. Meanwhile, car sales in China surged 11.0% in June from a year ago for the third straight monthly gain, according to an industry group. The preliminary figures from the China Association of Automobile Manufacturers offered evidence of a revival in consumer demand and a possible turnaround in a year’s long slump in the world’s largest car market.
  • Chinese investor confidence in a sustainable recovery remains low after a renewed virus outbreak in Beijing in June raised fears of a second wave of infections. To help support the economy, the People’s Bank of China, which has rolled out a raft of easing measures since early this year to cushion the economy from the pandemic, cut its rediscount and relending rates by a quarter point each. Analysts said the moves were aimed at supporting small to mid-size businesses and signal that the central bank will continue to implement targeted easing measures in the coming months
  • Stocks in China rallied for the week until Thursday after several data points suggested that the economy was firmly recovering after a historic contraction in the year’s first quarter. On Thursday, the blue-chip CSI 300 Index closed at its highest level since January 2018, while the benchmark Shanghai Composite Index rose to its highest close since January. China’s sovereign 10-year bond yield was broadly flat for the week until Thursday.

Sources: T. Rowe Price, Reuters, TD Economics, Wells Fargo, M. Cassar Derjavets.