Signs of weakness in Europe
Despite the fact that the final PMIs have confirmed a rebound in manufacturing activities in the last two months, low demand still maintains important barriers for recovery, unemployment in Germany has substantially increased during June and data from the UK does not draw a scenario of immediate recovery. The total of unemployed people in the continent`s largest economy reached3 million (6.4% unemployment rate) after 678 thousand unemployed people were logged in June, the largest figure since 2011. The Federal Employment Agency assured that figures have stayed at these levels due to the government aid that pays for close to 60% of workers` salaries, which is something that keeps unemployment limited in comparison to other advanced economies. Moreover, the Ifo Institute cut its economic recovery forecasts as it adjusted its expected growth of 10% next year to a little over half of that: 6.4%. In the UK, housing prices recorded their first annual drop since 2012 (0.1% June) and sentiment among businesses in the manufacturing sector fell to its lowest level since the 2008 crisis in midst of a complex global environment because of the virus and the high regional uncertainty that Brexit represents.
USMCA comes into force
Today, the new agreement between Mexico, the United States and Canada (USMCA) comes into force, which substitutes the original free trade agreement (NAFTA). The agreement marks the end of a little more than two years of uncertainty regarding commercial relations in the region, after 13 months of intense negotiations. Even though the USMCA keeps an important part of NAFTA`s agreements, some industries will see important changes. The automotive sector will require more regional components for a zero tariff to come into force, and portion of its parts must be produced in regions with salaries above $16 dollars an hour. Canada will import more dairy products from the US, more regulations will be approved regarding internet platforms and e-business, and requirements will be raised concerning intellectual property rights and labor protection. Mexico`s Chamber of Deputies carried out a last minute approval of legislative changes for the Mexican legal system`s harmonization with the agreement. Now the country must face new challenges in order to comply with new rules of origin regarding the assembling of automobiles and move forward with greater transparency and labor protection as these new rules allow US companies to report any non-compliance in this matter, which could result in compensations through tariffs.
Private businesses add 2.3M jobs in the US
The ADP, investigative agency, revealed this morning that the private sector in the US added up to 2.37 million new jobs during June, a figure that set below estimates. This figure shows a return to activity in various businesses in the country after the end of the quarantine period, as 70% of jobs were added in the leisure, hospitality, trade and construction industries. Services added 1.9M while goods manufacturers added 457 thousand. Leisure and hospitality businesses added 961 new jobs and construction added 394 thousand. Only three industries recorded contractions: mining, information and management. The data appears one day before the official publishing of employment figures in the US, which could once again cause controversy because of the classification of employed and unemployed people last month that led to a positive surprise. The Treasury Department confirmed that it disbursed up to $108 billion dollars in unemployment assistance in June, the largest amount since the start of the pandemic, and a total of 267 billion dollars in transfers in 2020. If these benefits are extended for a longer period of time – after July 31st – figures could continue to increase in August and the rest of the year.