The Day at a Glance | May 21 2020

Slight recovery in Europe

The European economy showed some signs of recovery in May, according to preliminary PMIs. Overall economic activity showed its lowest level of contraction in three months (Composite PMI 30.5 May vs 13.6 Apr), with recoveries in the manufacturing sector (39.5 May vs 33.4 Apr) as well as in the service sector (35.4 May vs 18.1 Apr). The lower levels of contraction in economic activity reflect the easing of confinement measures in various of the block`s economies during this month, as an important recovery is seen especially in the service sector. Notwithstanding, the economy maintains its lowest levels of contraction ever recorded and logged three consecutive months under 50. COVID-19 continues to affect services, especially hotels, restaurants, traveling, tourism and consumer services. Production in the manufacturing sector still showed decline, but some companies disclosed slight improvement. With this, employment continues to decrease at its fastest level in history and recorded a slight improvement with respect to April`s record negative figures. Various businesses have mentioned that employee retention in the medium and long term depend on the speed of recovery, as their payrolls are being helped by government aid. It`s possible that the economy reached bottom in April, but May`s figures are consistent with a (-) 10% quarterly contraction regarding Europe`s GDP in 2Q20. As countries reduce confinement measures, it`s expected that the recovery will gain momentum; but concerns exist regarding the possibility of demand still being weak for a long period of time, which could keep pressure on businesses and their capacity to retain jobs once government aid stops. The economy`s total recovery to pre-crisis levels could take several years, assures the HIS/Markit report.

The US unemployment remains high

Initial jobless claims in the US recorded a 2.43 million increase last week, a slight slowdown with respect to figures recorded two weeks ago (2.68M). Figures continue to keep expectations of unemployment high and more than 38.6 million jobs have been lost since the start of the health emergency in the US. Last week`s figures were revised downwards (from 2.98M to 2.68M) because of issues regarding Connecticut`s data. The numbers have been gradually reducing since the 6.68 million peak reached in the week of March 28th. It`s believed that numbers are still high because of the increase in jobless claims made by short-term workers (´gig economy´), who regularly don`t get access to federal aid until after being denied state support. With the economy`s gradual reopening, it`s expected that claims will begin to decline at a faster rate, and the most accurate indicator to measure unemployment created by the pandemic will be the number of claims that are still in the approval process (claims that have neither been denied or discontinued) – figure that was set at 25 million for the second week of May.