A tale of two furloughs

Posted by: Paul Donovan

06 Apr 2020
  • The virtual meeting between OPEC and Russia has been delayed until (maybe) Thursday. Possibly Russian President Putin has been binge watching "Tiger King" on Netflix and does not want Skype calls taking up broadband capacity. However, in the context of some pointed comments over the weekend, markets see something more serious in the delay. The oil price has fallen.
  • Friday's US employment report was survey based, and must be treated with considerable caution. However, basically the entire rise in unemployment was attributed to "temporary layoffs". This is a harsher version of the European furlough – workers' jobs still exist, but are not paid. Under a US furlough, unemployment rises. Under a European furlough, unemployment does not rise.
  • The critical question is whether there are jobs to return to. Business closures need to be considered alongside unemployment data. European workers on furlough will have higher incomes than will US workers. This may give more spending power when lockdowns are eased.
  • Bank of England Governor Bailey (an economist) was clear that the bank would not engage in monetary financing – printing money – as it would risk inflation. Quantitative policy can be reversed in the face of inflation. It is far harder to reverse monetary financing.

Explore more CIO Daily Updates