After taking a 2-week pause, the US stock market (as measured by the S&P 500) extended its April rally with another strong week by gaining 3.6%. Amazingly, the markets even rallied after the horrific April jobs report that was presented on Friday. According to the Bureau of Labor Statistics (BLS), 20.5 million jobs were lost in April, raising the unemployment rate to 14.7%. This was the highest unemployment rate since the BLS has been tracking this data since 1948, and also the worst since the Great Depression of the early 1930’s. Ironically, this is also only two months after the lowest unemployment rate we’ve seen in over 50 years. And the markets went up with that news? That seems awfully counter intuitive, doesn’t it? So, let’s take a closer look at the numbers.
While there were 20.5 million jobs lost in April, economists’ consensus was expecting a loss of 22 million jobs, so that was “better” than expected. Plus, I saw 2 different unconfirmed reports that were also favorable. One report said that 78% (the other report said 90%) of those jobs lost were temporary, implying that most of the people currently laid off would be back working again in the near future, erasing most of those job losses. Of course, nowhere in these report did they say WHEN employees would be back to work. Personally, I know several professionals that were put on furlough with their company, which means they are kept “employed” but asked to work either part time, or they were laid off until further notice. If these reports are accurate and most people return to work soon, then the damage to the economy should hopefully be limited.
In my professional opinion, I believe that we are sitting on the cusp where the US economy could go either way. If most people return to work within the next month and we don’t see a massive wave of Corona revisiting us in the fall or over the winter, the US economy will have survived COVID-19 without a major adverse impact. Of course, many businesses (retail outlets, restaurants, hotels, airlines, and other service industries) will not recover what they lost during the two-month outage, and unfortunately many small businesses will shut down forever. For those businesses that survived, the economic wounds will heal over time and the trusty consumer (comprising of 2/3 of the economy) should continue to be reliable. In fact, we may even see a surge in demand for consumer products later in the year, which would include purchases already intended, but were delayed because of COVID-19. Meanwhile, other industries will continue to feel pressure for quite some time, such as sporting events, concert venues, airlines, and hotels, all of which will take time for the public to feel comfortable engaging in these activities again. Conversely, if US workers are held back for more than a few weeks and/or we have another wave of new COVID cases causing the US population to stay at home again, this could cause a recession we haven’t seen since the Great Depression. That’s a pretty serious ramification, so let’s hope this doesn’t happen.