Fed’s Bostic: This is not a garden-variety recession
The COVID-19 pandemic is far from over and it looks like it will continue to plague the country for longer than anyone expected.
“There is still a lot to do and it looks as though this will be around much longer than we thought,” said Raphael Bostic, president of the Federal Reserve Bank of Atlanta. “This is not a garden-variety recession.”
The pandemic is in its fifth month is wreaking havoc in the U.S. and financial markets have stabilized after being routed when the economic closures began. One reason often given for the improvement is the Federal Reserve's quick actions to support the financial markets.
“While we can be confident that low facility usage amid generally well-functioning markets reflects the power of backstops, we must remain vigilant for any signs of hesitation of eligible participants to use the facilities out of concerns it sends a signal of weakness,” said Daleep Singh, executive vice president and head of the markets group at the Federal Reserve Bank of New York. “Credible backstops provide confidence that may prevent a severe deterioration of market conditions going forward, but the true test of the facilities’ effectiveness will be if they are used when needed in dysfunctional market conditions. As always, we stand ready to make adjustments to our operations as necessary to meet our objectives.”
Mickey Levy, chief economist for the U.S. Americas and Asia at Berenberg Capital Markets noted layoffs in May declined to 1.8 million, already returning to pre-pandemic levels after surging to 11.5 million in March.
“This quick drop in layoffs to normal levels is a welcome surprise, increasing the likelihood of sustained net increases in employment in the coming months,” Levy said. “Layoffs returned near pre-crisis levels for all major industries except mining and logging and wholesale trade. Clearly widespread business reclosures from COVID-19 incidence spikes would reverse these trends. The sharp decline in layoffs contrasts the still historically high weekly initial jobless claims, providing more evidence that the jobless claims data that are collected at the state level are an unreliable gauge of labor market dynamics during this crisis.”
But the economy is not out of the woods yet, according to Levy.
“The sharp fall in layoffs in May explains the faster-than-expected rebound in nonfarm payrolls growth in May, and, based on the 4.8 million increase in June’s payrolls, this trend continued,” he said. “But payrolls are still 14.7 million below February’s level, indicating that the labor market recovery still has a long way to go.”
Labor market flows from the monthly employment report point to a continuation of elevated hiring trends in June and declines in layoffs, he added.
“In June, a massive 7.8 million persons moved from ‘unemployed’ to ‘employed’ and 7.5 million persons moved from ‘employed’ to ‘unemployed’ or ‘not in the labor force,’ down markedly from 27 million in April, indicating further declines in layoffs.”