US Macro: Payrolls surprise disguises permanent labour market damage – Nonfarm payrolls rose by 4.8mn in June, much higher than consensus (3.2mn) but closer to our forecast (4.5mn). The unemployment rate fell from 13.3% to 11.1%, again a better outturn than consensus (12.5%) but broadly in line with our forecast (11.2%). However, for us a far more important development was the surge in permanent layoffs. These rose by 759k in June, up from 385k in May, and the biggest loss of jobs since the height of the Great Recession in January 2009, when permanent layoffs were 805k. This takes the stock of permanent layoffs to 3.7mn – the highest since July 2014, and so essentially erasing 6 years of labour market gains in the space of a few months. This is being disguised at present by the much bigger return of temporary furloughs back to the labour force, which although a welcome development, was entirely expected following the easing of lockdown restrictions in the US. The rise in permanent layoffs is consistent with our view that unemployment will remain elevated for some time to come, and will be well above pre-pandemic levels even by end-2021 (our forecast: 8.3%). While we expect headline payrolls to remain positive over the coming months as a base case, permanent layoffs are likely to continue rising in the background, and we cannot discount the possibility of another fall in overall payrolls at some point.
The resurgent pandemic poses additional downside risks – Against the backdrop of increased permanent job losses labour market participants now have to contend with a pause or partial rollback of the reopening in many parts of the US, with unsustainable rises in hospital admissions in some states. The extent of renewed restrictions is for the most part relatively piecemeal compared to the March lockdowns, with for instance capacity reductions in Texas restaurants from 75% to 50%, but in California the rollback has been more significant, with indoor dining banned altogether (outdoor dining remains allowed). A planned restart of indoor dining in New York City has also been put on hold, despite the pandemic remaining more contained in the state (elsewhere in the state, indoor dining has already resumed and will be unaffected). For the time being, we do not view the new restrictions as significant enough to change our growth forecast, but this would change should these restrictions persist for longer than 1-2 months, or if they need to be tightened significantly further.