A tale of two labor markets

Posted by: Paul Donovan

03 Jul 2020

Weekly Update

  • The pattern of this crisis is not normal. This is not a 'bubble, burst bubble, sort out bubble, recover' cycle. This is an abrupt switching off of economies, followed by a relatively abrupt switching back on. Companies and consumers are not likely to react as they have in the past.
  • The labor market is showing this. There seem to be two groups. Some people who were on furlough or temporarily unemployed are returning to their jobs far faster than in a normal economic cycle. Businesses in these sectors just went into a brief hibernation. The employment consequences of the lockdown were temporary.
  • The other group faces a bleaker future. Some sectors of the economy were already in decline before the crisis began. Some shops were fighting a losing battle against the rise of online retail, for example. Such businesses would have closed within a few years. Some companies in these sectors seem to have decided to accept the inevitable, and to close their businesses earlier than they would otherwise have done.
  • This pattern will allow European and US growth to be the best on record in the third quarter, but leave the economies with spare capacity and relatively high unemployment at the end of the year.

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