ECONOMY AND POLICY
July 2, 2020

Chief Economist Scott Brown discusses the latest market data.

It’s all about the pandemic. Rising cases in a number of states fueled fears of a second wave of infections and a more protracted economic recovery. In its updated World Economic Outlook, the International Monetary Fund lowered its forecast of global growth in 2020 to -4.7% (vs. a -3.0% estimate made three months ago).

Nonfarm payrolls rose by 4.8 million in the initial estimate for June, following a 2.7 million gain in May, still down 14.6 million (-11.0%) from February. Strong rebounds were recorded in areas hit hardest by the pandemic (leisure & hospitality, retail, construction, and manufacturing) – although still far below pre-pandemic levels. The unemployment rate fell to 11.1%, with a smaller under-reporting from misclassifications than in recent months. While the number on temporary layoffs fell, those on permanent layoffs picked up.

Other economic data reports remained consistent with a sharp-but-partial rebound from a steep drop in economic activity in March and April. The ISM Manufacturing Index rose to 52.6 in June, from 43.1 in May, with moderate gains in new orders and production, suggesting that manufacturing activity has turned the corner (although far from recovered). The Conference Board’s Consumer Confidence Index rose to 98.1, from May’s 85.9), but the survey was mostly before the recent rise in COVID-19 cases. Initial claims for unemployment benefits edged down to 1.427 million in the week ending June 27, still elevated. U.S. exports fell sharply in May (-32.1% y/y).

Minutes of the June 9-10 FOMC meeting showed that Federal Reserve officials were concerned about the economy and were prepared to do more to support the recovery.

Next week, the economic calendar thins out. The ISM Non-Manufacturing Index is expected to be less weak in June. The Producer Price Index should reflect higher wholesale gasoline prices, with core inflation remaining mild. Jobless claims, still elevated in recent weeks, will bear watching.