Read my lips: "It's all about jobs"

Posted by: Paul Donovan

20 Mar 2020
  • Yesterday's US initial jobless claims numbers showed rising unemployment before fear started to take hold. GDP will fall in the months ahead. Government (health) policy is to deliberately reduce GDP. That means a demand drop. If lower demand means people lose their jobs, they will not participate in the economic bounce back. That will delay the bounce back.
  • The UK government is expected to unveil a jobs plan. The suggestion is government will directly pay part of workers' salaries. Covering most wages of half of all small business employees costs around 0.75% of GDP/month. Six months spending 1% to 2% of GDP/month is manageable.
  • US Treasury Secretary Mnuchin wants Congress to pass fiscal plans on Monday. These plans focus on USD 1,200 for every adult earning less than USD 99,000. Giving USD 1,200 to someone locked down in California will not save a San Francisco bar worker's job. This package boosts but also delays the bounce back.
  • If incomes can be protected, some consumer spending continues in a lockdown. Around 60% of spending is stable or increases (housing, food at home). 15% of spending is delayed. 25% of spending is lost – that is where stimulus is needed. We should also remember that markets always underestimate the adaptability and resilience of people in a crisis.

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