Job trouble? Wave of rehiring after economy reopened to fade in July after viral spiral

The engine of the U.S. economy may have gotten clogged again — no thanks to the recent acceleration in coronavirus cases. That’s bad news for Americans hoping to return to their old jobs.

Just how much damage has been done will become more evident this week, especially from the U.S. employment report for July due next Friday. The number of jobs regained last month is unlikely to match the huge increases in May and June that totaled a combined 7.5 million.

Wall Street

economists predict the U.S. added about 1.5 million jobs in July.

Even that estimate may be inflated though by seasonal changes in educational employment at the state and local level, Morgan Stanley contends. Private-sector jobs could increase by less than one million, the investment bank calculated.

See: MarketWatch Economic Calendar

Whatever the case, a much smaller increase in hiring or rehiring in July would bode ill for the U.S. recovery from the coronavirus pandemic. The government last week reported that gross domestic product sank a whopping 32.9% in the second quarter on an annualized basis, the biggest decline since World War Two.

Read: Economy suffers titanic 32.9% plunge in 2nd quarter, points to drawn-out recovery

Also:‘A massive welfare economy’ – federal aid prevents even steeper GDP collapse

“The big question hovering over next week’s employment report is whether the two-month surge in job gains stopped in July,” says David Donabedian, chief investment officer of CIBC Private Wealth Management. He thinks that’s exactly what happened.

It will be hard for the economy to make up a lot of lost ground in the third quarter unless hiring snaps back even faster.

See:MarketWatch Coronavirus Recovery Tracker

The U.S. lost a record 22 million jobs in March and April, according to Labor Department data. So far the economy has recovered less than one-third of those jobs.

The weekly tally of jobless claims, meanwhile, showed an even higher 30 million unemployed people were collecting benefits as of mid-July, representing about one in five Americans who said they were working before the pandemic, according to a Labor Department survey of households.

Robert Frick, corporate economist at Navy Federal Credit Union, said many people who expect to return to work are going to find they have no jobs or businesses to which they can return, a “grim reminder” of how much long-term damage the pandemic has caused.

“In the long run we are going to see a sobering slowdown in job growth,” he said.

The still-high level of unemployment, the viral spiral, and the uncertainty over whether Washington will provide more financial aid has understandably made Americans feel less confidence. On Friday Congressional lawmakers were still at odds on the next relief package with many benefits set to expire at the end of July.

A variety of measures that monitor consumer attitudes show a clear deterioration in July that’s likely to bleed over into August. That will make a recovery even harder.

Read:Consumer confidence wanes in July and points to rockier economic recovery

And:Consumer sentiment falls as coronavirus cases rise and federal aid set to expire

The news might not all be negative next week, however.

Manufacturers — auto makers in particular — have shown more resilience than the service side of the economy. The closely followed ISM manufacturing survey could show improvement for the third straight month.

The housing industry has also snapped back faster than expected amid a surge in home sales. Prospective buyers with secure jobs are taking advantage of record-low interest rates to buy new homes, a trend that may have been fueled by people fleeing the closed spaces of cities with a high number of coronavirus cases.

Even that potential bit of good news, however, has been overshadowed by the broader damage to the economy from the latest spike in coronavirus cases in many American states.

A full recovery can’t take root and blossom, economists say, until the disease is brought under control.

See: Pandemic will continue for some time, experts tell Congress as U.S. case tally nears 4.5 million

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U.S. likely regained 3 million jobs in June, but coronavirus flareups hamper recovery

Investors already got fooled once after several million people returned to work in May. They might get fooled again in June, but they worry the next surprise won’t be so pleasant.

Wall Street

predicts the U.S. regained an additional 3 million jobs in June, with forecasts going as high as 8 million.

The U.S. regained 2.5 milion jobs in May, confounding expectations for another big decline, though the Bureau of Labor Statistics also said every state began to reopen their economies to some degree last month and 2.7 million people who had temporarily lost jobs amid the pandemic returned to work.

The unemployment rate, meanwhile, is seen falling again to 12% from 13.3% when the Labor Department reports the monthly data next Thursday, a day earlier than usual because of the July Fourth celebrated on Friday this year.

The veneer of optimism about the June forecast, however, is unable to hide festering doubts.

Read:Consumer confidence in U.S. economic policies slumps to Trump-era low

For one thing, the number of new applications for unemployment compensation has yet to drop below 2 million a week since the pandemic began in March. Some 30 million people were still collecting benefits at the beginning of the month. And a rise in coronvirus cases beginning in early June has spurred individuals, companies and governments to become more cautious again.

Any employment increase significantly less than 3 million would be viewed as a bad sign, reinforcing the widely held view that the recovery that began in May is likely to be quite choppy. The U.S. lost a record 22 million jobs in the first two months of the pandemic and the economy can’t return to anything close to normal until most of those people go back to work.

See: Marketwatch’s Coronavirus Economic Recovery Tracker

Even if job growth meets or exceeds Wall Street’s target, however, the anxiety is not going to fade until the recent explosion in coronavirus cases does. Fresh outbreaks in the states that were among the earliest to reopen such as Florida and Texas have raised alarms again and caused governors to hit the pause button on allowing businesses to re-open.

“Reopening the economy will not be a linear, week-to-week process. There will be setbacks,” said chief economist Chris Low of FHN Financial. “Each city and state will have to feel its way back to normal.”

The employment report highlights a busy day before the July 4 holiday in the United States. At the same time, the government will release the latest tally of initial jobless claims.

Read:Consumer spending jumps record 8.2% as economy reopens, unemployment benefits surge

Jobless claims have not fallen as quickly as expected, raising questions not just about the strength of the recovery, but also the quality of the data. Some economists say the report is rife with over-counting because of repeat filings by the same individuals and the inability of overworked state unemployment offices to handle the crush of applications.

See: MarketWatch Economic Calendar

Earlier in the week, Wall Street will keep a close eye on consumer confidence data, auto sales and an ISM purchasing managers report on the manufacturing sector. Investors will also sift through the Federal Reserve’s minutes of its June meeting for clues on whether the central bank plans to step up efforts to support the economy.

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