Are employment fears overdone?

Evidence is emerging that the recovery in the UK economy is even more robust that had previously been presumed. Job vacancies have recovered to a level last seen before the first lockdown over a year ago.

Sectors that were least affected by the pandemic such as logistics and construction are seeing a particularly strong recovery.

There had been concerns that Brexit would have an effect on the services sector but so far, that area of the economy, which makes up 80% of output, remains strong.

Concerns remain that there will be several businesses whose survival depends on support from the Government and when the furlough scheme ends in September, it could lead to a significant rise in unemployment. Analysts believe that those fears could be overdone with the economy building a far stronger base that had at first been expected.

Optimism is also growing that the economy could reach pre-Covid levels by the end of the year, a target that would have been considered impossible last Autumn.

The success of the vaccination rollout has truly been a game changer although the Government credits the lockdown which is gradually being withdrawn as having had at least as much effect on infection rates.

While there may be some bumps in the road caused by concerns over side effects of certain vaccines and questions over its effectiveness against new variants, it is highly likely that the UK will be in a position to be restriction-free by mid-June.

The pound remains range bound versus the dollar and is levelling out following a recent correction versus the euro. Against the greenback, it reached 1.3809 yesterday, a similar high to the previous day, and closed at 1.3787. Meanwhile, against the single currency, it reached 1.1534, closing at 1.1517.

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Fall of 193K spurs expectations for NFP

The recovery of the U.S, economy continues to gather pace with evidence that concerns over jobless data being unfounded emerge. The number of new jobless claims fell to its lowest level in a year and is looking likely to fall below 500k imminently.

The total number of claims rose slightly in data released yesterday., but that number is also likely to fall in the coming weeks.

While a lot of the growing confidence in the recovery had been anecdotal, the most recent data for non-farm payrolls is being seen as the beginning of the proof that the level of support provided by the Federal Reserve and the stimulus provided by the Biden Bill are having a significant effect.

Data for retail sales was also released yesterday and month on month activity grew by 9.8%. While the number may have been magnified by a fall of 2.7% in February that was exacerbated by people awaiting the direct cheques as part of the stimulus, there is no doubt that the recovery is solidifying at a rapid pace.

Data from regional Federal Reserves are also showing signs of improvement. There is a degree of inconsistency that is mostly due to the level of vaccinations being seen and the take up of the offer of inoculation that differs from state to state.

The Philadelphia Fed released its survey of manufacturing output yesterday and it showed a rise from 44.5 to 50.2. Meanwhile in New York the Empire State index also rose.

However, overall industrial output returned to positivity in March rising by 1.4% compared to a 2.6% fall in February. While this is encouraging, the rise was less than the market had been expecting.

The dollar index remains pressured by the continued dovish outlook from the Fed. Yesterday, it found support around 91.50, closing at 91.68.

ECB less concerned about recovery than outside agencies

The IMF is clearly taking a close look at data emanating from the European Union and Eurozone as it remains concerned about the limited contribution one of the major global economies is making to the global recovery.

It has called upon Brussels to provide a greater level of stimulus to the entire economy in order to speed the recovery.

It is hard to imagine that internally, the ECB disagrees with the IMF, but so far the Central Bank’s President Christine Lagarde remains confident that the recovery is on course.

The IMF is calling upon Eurozone members to boost spending by 3% in the coming year. That would need to be financed by Brussels as individual economies are beginning to show signs that the fractured treatment of the Pandemic is taking a toll.

For example, Spain where 12.5 of GDP is due to tourism has cut its growth estimate for this year significantly. It is still unknown when the stimulus spigot will be turned on, with the Spanish Economy Minister commented yesterday that they expect to receive funds in the second half of the year.

That level of uncertainty is being fuelled by reticence in several Capitals to engage in discussion until the full extent of support needed is known.

This chicken and egg situation is leading debt to GDP ratios to skyrocket and calling into question the unity of the Union.

Meanwhile, as a further slap in the face for those nations struggling with the Pandemic and its effect on their economies, the German Economy Minister announced yesterday that he expects the Government to announce a significant increase in its expectation for growth in the country this year. from the 3% level it currently estimates.

The euro continues to react to the dollar although it seems that the reluctance of the market to take the single currency above 1.20 may slow any fall in the dollar index. Yesterday, the euro reached a high of 1.1993, before falling back to close at 1.1966.