Second wave impacts
We added 1.76 new jobs in July, which is about a third of the jobs that were gained in June. This checks out given rising COVID-19 cases toward the end of June caused much of the country to shut down again. Restaurants and retailers added the most jobs in July, but at a much slower pace than in June. These two sectors were the hardest hit due to government-mandated shutdowns and accounted for over 8m of the total job losses. As of July, only about half of those jobs have come back.
Moral of the story: In aggregate, we lost over 22m jobs during the peak of the pandemic, and we’ve only regained about 9.3m of those jobs. The real unemployment rate remains pretty high at 16.5%. The slowing pace of regaining jobs is a clear indicator the recovery is going to be quite timid until the virus is under control.
Earnings so far
Almost 90% of the S&P 500 companies have reported earnings so far and 83% of them have reported earnings ahead of Wall Street’s expectations. In terms of upside surprises, this is the highest level of positive surprise since 2008, though tbh expectations were really low. Even though earnings have come in 22.4% higher than expectations, they represent about a 34% decline in earnings compared to last year.
Moral of the story: This earnings decline is the worst we’ve seen since the beginning of 2009, when we were in the height of the Global Financial Crisis. Looking forward, analysts are currently expecting earnings to fall again by 22.9% and 12.8% in the next two quarters before returning to growth in the first quarter of 2021. Much of this trajectory is highly dependent on the state of the pandemic in this country, so still tbd.
Trump’s Swan song
All week, we’ve been waiting for Congress to get its ducks in a row and figure out some extension of the COVID-19 relief package benefits that ran out at the end of July. Shocking nobody, our elected representatives were in stuck in gridlock. On Saturday, however, it seems like Trump took things into his own hands by signing executive orders to extend some of the pandemic relief. These orders extend unemployment benefits (albeit at a lower rate than before), student loan payment deferrals, and eviction moratoriums through 2020.
Moral of the story: The federal government has basically been trying to bridge the economy to the other side of this pandemic. The irony is that if the federal government had done a better job with actually dealing with COVID-19 (ICYMI, watch Jonathan Swan interview with Trump – I didn’t know whether to laugh or cry), we probably wouldn’t need so much rescuing. We’ll see how Congress reacts because these programs require federal funding, which is controlled by Congress.