Rolling coverage of the latest economic and financial news, including new UK unemployment statistics
- Latest: IEA cuts oil demand forecast
- Breaking: UK redundancies jumps to 156,000 in last quarter
- That’s 48,000 more than previous three months
- Economists: Redundancies will keep rising
- Payrolled employment has fallen by 700,000 since March
- More than five million people still furloughed
And finally, the London stock market has closed at its highest level in over three weeks.
The FTSE ended the day up 79 points at 6105, a gain of 1.3%.
Ocado’s share price has now reached a new record high – £26.02-a-share valuing the online retailer turned technology player at £19.44 billion.
Nearly double the value of Morrisons, Sainsbury’s and M&S COMBINED.
(Tesco is worth £21.57 billion by comparison.) https://t.co/BYBpzfcQz6
The Nasdaq continues to lead the stock market rally as investors brace for another Fed meeting that could deliver a dovish surprise. Following Jackson Hole, the Fed’s new framework allows them to take a pass at this meeting, but not all investors are betting on that. The Fed will likely reiterate the need for Congress to do more and moderate their forecasts which have already seen inflation and the labor market rebound run hotter than what was forecasted in June. The Fed will be unable to be optimistic about the recovery until they see how the economy performs when the second wave of the coronavirus hits. The labor market has improved better-than-expected but most of the momentum has faded. Powell will likely remain downbeat and that might be enough to keep risky assets supported.
While the mega-cap tech stocks are stealing most of today’s headlines, real estate and utilities are leading the charge higher. The rotation into cyclicals is very positive long-term for stocks and this rally is starting to see significant gains in real estate, materials and consumer stocks.
Time for a quick recap
The UK’s Covid-19 jobs crisis has deepened, with the news that redundancies are running at the fastest rate since the financial crisis.
The US stock market has opened higher for the second day running, as shares recover some of last week’s losses.
The Dow Jones industrial average has risen by 208 points, or 0.75%, to 28,202.
Just in: Industrial output across the whole United States only expanded by 0.4% in August.
That’s a sharp slowdown on July, when production jumped by 3.5% (that’s been revised up from 3%).
Manufacturing output continued to improve in August, rising 1.0 percent, but the gains for most manufacturing industries have gradually slowed since June.
Mining production fell 2.5 percent in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling. The output of utilities moved down 0.4 percent.
Here’s some reaction to the strong jump in New York state manufacturing this month (see earlier post).
September Empire Manufacturing at 17 vs. 6.8 est. & 3.7 in prior month; 3rd straight month of expanding activity, with new orders & work hours now expanding … employment still improving & 6m general business conditions rose to 40.3 (up from 34.3 prior) @Bloomberg pic.twitter.com/p8LPyRszRk
#manufacturing activity expanded at a solid clip in September according to firms responding to the Empire State Manufacturing Survey. New #orders and #shipments increased. Looking ahead, firms were more optimistic that #business conditions would improve over the next six months. pic.twitter.com/cLMnSVrLPn
Mel Stride MP, Chair of the Treasury Committee, has welcomed the news that the High Court has found in favour of the majority of the arguments made by businesses seeking insurance payouts over Covid-19 (see earlier post).
Stride is urging insurers to pay out quickly:
This ruling will provide hope for many businesses that have been put through the mill whilst seeking insurance pay-outs.
“For some though, the devil will be in the detail of this judgement. Others may be caught up in any appeals. It is to the credit of the FCA that they have initiated and driven this approach.
Just in: Factories in the New York state have reported a strong pickup in demand this month.
Manufacturers in the region have reported that new orders have risen in September, with business conditions also improving.
*(US) SEPT EMPIRE MANUFACTURING: 17.0 V 6.8E
European stock markets are continuing to rally, with the FTSE 100 now up 1.1% at 6093.
The jump in UK unemployment didn’t prevent sterling from strengthening this morning.
The pound has gained three-quarters of a cent against the US dollar to $1.292, its highest level since last Thursday. It’s also a little higher against the euro, at €1.086.
“A deal is now at best a 50:50 probability. The key factor will be whether the Internal Markets Bill makes its way through the Commons and Lords successfully.
If so, the EU is highly unlikely to sign a free-trade agreement with the UK given the lack of trust, and threat of withdrawal agreement breach. However, a deal shouldn’t be completely ruled out, and is still possible if the bill fails/is watered down, but would require the UK to reluctantly relax its red line on state aid. It’s clear the government won’t do a deal at any cost.”
Here’s some early reaction to the High Court’s ruling over Covid-19 insurance claims:
High Court finds in favour of policyholiders in the majority of key issues over insurers failing to pay out for business interruption clauses following Covid
Christopher Woolard, interim chair of the FCA pic.twitter.com/9qyaMGBMDv
Judgment handed down in FCA’s COVID-19 business interruption insurance test case https://t.co/ugFhAgjyos The policyholders seem to have mostly prevailed.
In another crucial judgement the Appeal Court has decided that most insurance police for business interruption will now have to pay out abd cannot hide behind excuses that Covid was a pandemic not a local disease. https://t.co/XbNd3tV3OS and FCA page here https://t.co/fb9ZkgBjbN
The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.
“Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events. We recognise this continues to be a difficult time for many businesses, small and large, and for society as a whole. That is why insurers have made a range of commitments to help both businesses and individual customers through the crisis and why the industry expects to pay out over £1.7bn in Covid-19 claims
The UK high court has handed down an eagerly awaited, and quite complex, ruling on whether insurers should pay out to businesses forced to shut during the pandemic.
‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.
Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.
‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
The Judgment clarifies that fewer than one third of Hiscox’s 34,000 UK business interruption policies may respond. Coverage under these policies is essentially limited to those customers who were mandatorily closed by Government orders, and then only in certain circumstances.
The High Court ruling means that hundreds of Hiscox Action Group members who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance.
The UK’s weakening labour market loomed over today’s cabinet meeting at Downing Street:
Meanwhile at Cabinet Chancellor warns colleagues, economy ‘nowhere near’ pre-Covid levels altho signs of uptick – promises to be ‘creative’ in helping people stay in or find new jobs, but says govt mustn’t lose sight that massive taxpayer support so far as ‘come at a cost’
Over in Germany, investor sentiment has jumped this month despite fears of a Covid-19 second wave…and the reemergence of Brexit fears.
The ZEW institute’s survey of investor morale jumped to 77.4 this month, from 71.5. ZEW’s gauge of current economic conditions also rose, but the survey also found concerns that bad debts will rise in the next six months.
European stock markets are all higher this morning, partly lifted by decent economic news from China.
Retail sales across China rose 0.5% year-on-year in August, the first positive move since 2020 began. The increase was driven by a 25% jump in sales of communication equipment, and an 11.8% jump in car sales.
Here’s another decent thread on today’s UK unemployment statistics, from Resolution Foundation’s Torsten Bell:
It’s begun. First big unemployment rises coming through official jobs stats. Headline rate rises to 4.1%, but that’s average of May to July (includes height of furlough scheme). Look at the single month data – in July alone unemployment rose 0.6% pic.twitter.com/sMsArWOrUU
700k fewer workers on payroll vs start of the pandemic is what the most timely data for August shows us – down 2.2% vs last august and 36k since July (a sign of no huge jobs cliff edge when firms were asked to start contributing tiny amounts to costs of furloughed workers) pic.twitter.com/G2UFehT8pq
Such a weird crisis. The unfreezing of the economy is giving us both the job losses, but also the signs of recovery – so vacancy rates ticking up (still low) as unemployment does. This matters: rates of people reentering work from unemployment as important as initial job losses pic.twitter.com/r1L23ayqHm
Just in: Concerns over the world economy has forced the International Energy Agency (IEA) to cut its oil demand forecast for 2020, for the second month running.
The IEA now predicts that oil demand will plunge by 8.4 million barrels per day this year, up from 8.1m bpd a month ago. That will pull demand down to its lowest level in seven years.
For 2020 as a whole, we see the fall in demand versus 2019 at 8.4 mb/d, slightly deeper than last month. At 91.7 mb/d, demand has returned to its level in 2013.
Our September Oil Market Report is out now:
• Global demand is expected to fall by 8.4 mb/d in 2020, a slightly deeper drop than we forecast last month
• Global supply rose by 1.1 mb/d month-on-month in August as OPEC+ cuts eased
Read more ⬇️ https://t.co/biG1wJswR1
In Europe, the number of new cases has risen as the holiday season ends, though the rate of hospitalisations and deaths is lower than seen earlier this year.
Case numbers in the United States are falling and the situation seems to be improving in Japan and Korea. However, in various places, the situation is worrying and we are seeing localised lockdowns. Some countries, for example France and the UK, have introduced measures such as mask-wearing obligations and restrictions on gatherings and they may yet go further to fight the pandemic.
Minister for Employment Mims Davies MP insists that the government is taking action to protect jobs — including through its new Kickstart Scheme.
That programme is designed to help younger people into the labour market (a vital issue, given the record FALL in younger people in work), through 6-month job placements paid for by the government (details here).
“We recognise that the pandemic has been difficult for many people who are worried about their incomes and that’s why our £30bn Plan for Jobs is aimed at protecting, supporting and creating jobs and it’s welcome news that there is some recovery in vacancies.
“Meanwhile, we’re creating hundreds of thousands of fully subsidised new jobs for young people through our £2bn Kickstart Scheme to give those starting out a leg up onto the career ladder and offer them hope for the future. And within our jobcentres we’re recruiting a further 13,500 Work Coaches so all jobseekers throughout the UK have access to tailored support, to build their skills and pivot into new roles.”
Domino’s Pizza, Britain’s biggest pizza delivery chain, is bucking the job loss trend by hiring 5,000 more staff.
With its busiest time of the year approaching, Domino’s announced today it will take on more pizza chefs, delivery drivers and customer service staff, on top of the 6,000 jobs already created this year.
Over in the City, meanwhile, shares in Ocado have jumped 6% after it reported a surge in sales over the last quarter.
The home delivery grocer posted a 52% increase in sales in the 13 weeks to 30 August, as the pandemic continued to drive more customers to online shopping.
UK business groups are urging the government to act, before unemployment surges higher in the coming months.
Matthew Percival, director of people and skills at the CBI, warns that a successor to the furlough scheme is badly needed:
“The easing of lockdown restrictions and a more flexible Job Retention Scheme in July have led to the beginning of a recovery in vacancies and hours worked. But rising redundancies, rising unemployment and a record fall in the number of young people in work are clear warning signs of what is to come.
“Looking ahead, a successor to the Job Retention Scheme is needed to protect jobs and businesses.”
“While there was a rise in the number of job vacancies, this is more likely to reflect a temporary bounce as the economy gradually opened, rather than a meaningful upturn in demand for labour. With many firms are still facing waves of cash flow problems, rising costs and an uncertain economic outlook, it is probable that unemployment will escalate sharply as government support winds down.
“To help avoid a damaging cliff edge for jobs more must be done help firms keep staff on through this deeply challenging period. This should include a significant cut in employer National Insurance Contributions and more substantial support for firms placed under local lockdowns.”
Chancellor Rishi Sunak has responded to the jump in unemployment, by pledging to protect jobs.
“This is a difficult time for many as the pandemic continues to have a profound impact on people’s jobs and livelihoods. That’s why protecting jobs and helping people back into work continues to be my number one priority.”
Sky News’s economics editor Ed Conway has written a good thread about this morning’s labour market report:
There is a continued air of unreality over the official UK jobs figures. The unemployment rate has now started to rise, but at 4.1% it’s still v low and you can barely make out the increase when you look in historical context. pic.twitter.com/6rv40Uu2bI
Better to look at a range of other measures, inc this: payroll jobs. It’s down by around 700k since the beginning of #COVID19. That’s actually slightly less of a fall than the @ONS originally calculated. But we’re in such uncharted territory that I wouldn’t read too much into it pic.twitter.com/bB4sD34kaz
Redundancies are now rising at the fastest rate since the financial crisis. But this is only the start. As the furlough scheme comes to an end there are likely to be many more. Sadly, this line is almost certainly heading a lot higher… pic.twitter.com/lR0udagfAf
There is some good news buried in the data though. Hours worked have stopped falling (after an unprecedented collapse) and are rising slightly. Though as with GDP the rebound still leaves us way down on the pre-crisis level. Not surprising since many are still furloughed pic.twitter.com/nyUBY746kN
Here’s my colleague Richard Partington’s news story on the UK jobs crisis:
The number of redundancies in Britain has accelerated at the fastest pace since the financial crisis as the hit to the economy during the coronavirus pandemic triggers rising levels of unemployment.
Against a backdrop of growing concern over a jobs crisis this autumn as the government’s furlough scheme comes to an end, the Office for National Statistics (ONS) said 156,000 people were made redundant in the three months to July.
Although the jump in redundancies in the last quarter is very sharp, it only captures a portion of all the jobs lost.
The ONS estimates that the number of payrolled employees fell by 2.2% compared with August 2019.
Younger workers, and older women, both suffered a record drop in employment in the last quarter.
Both groups have been badly hit by Covid-19, according to today’s labour market report.
Those aged 16 to 24 years decreased by 156,000 to 3.63 million (with a record decrease of 146,000 for those aged 18 to 24 years), while those aged 65 years and over decreased by 92,000 to 1.28 million (with a record decrease of 79,000 for women in that age group).
Tale of two crises in today’s jobs stats. Ongoing easing of lockdown means big fall in numbers away from work, increase in hours and pay, vacancies rising.
But recession, uncertainty and restructuring sees huge fall in youth employment and 45% increase in redundancies. Graphs: 1/
Starting on age. Employment falling for youngest and oldest, i.e. those in less secure work/ often in sectors most affected. Falls for young people are huge – back to 2015 levels, largest fall since March 2009. 2/ pic.twitter.com/8jtflr6Oz9
On redundancies, these are up 46% on the quarter, to 156k. Highest since the public sector losses in 2011-12. Bear in mind only one third of LFS respondents will have been in July, when we think they started to rise strongly. So this will get higher still (see our note yday). 3/ pic.twitter.com/MaQngANO51
With millions of people still furloughed, the number of hours worked across the UK economy is still dramatically low, as this chart shows:
Between February to April 2020 and May to July 2020, total actual weekly hours worked in the UK decreased by 93.9 million to 866.0 million hours. Average actual weekly hours fell by 2.8 hours on the quarter to 26.3 hours.
Over the year, total actual weekly hours worked in the UK decreased by 183.8 million to 866.0 million hours in the three months to July 2020. Over the same period, average actual weekly hours fell by 5.8 hours to 26.3 hours. The accommodation and food service activities sector saw the biggest annual fall in average actual weekly hours, down by 15.4 hours to 13.5 hours per week.
The number of vacancies at UK companies has risen since the lockdown eased, but remains extremely low.
In the June-August quarter, there were 434,000 vacancies in the UK, which is almost 30% higher than the record low in April to June 2020, the ONS reports.
Today’s jobs report shows clearly that the UK labour market deteriorated sharply in July.
With some firms struggling badly, the total jobs lost since March has now risen to almost 700,000 (measured by the number of people on company payrolls).
Britain’s labor market took a turn for the worse in July even as the economy gradually reopened, taking total job losses under the pandemic to almost 700,000 and raising pressure on the government to extend support programs.
Economists are deeply concerned that UK redundancies are going to keep rising sharply.
Her’es Sam Tombs of Pantheon Economics:
We’re still just at the start of what looks set to be a brutal period of redundancies: pic.twitter.com/Q1IsIFQFJK
A harbinger of what lies ahead, 156,000 redundancies in the UK in the three months to the end of July – the largest annual and quarterly increases seen since 2009. But, as always, remember how many jobs were still furloughed at the time of these statistics… pic.twitter.com/Ym3Ca6qPTy
The Office for National Statistics also reports that over five million people were on the Covid-19 Job Retention Scheme in July 2019.
That means the government was covering a portion of their wages because their employer doesn’t have enough work to need them to do all their hours.
The unemployment rate edged up to 4.1% (May-July) well below even the most hopeful forecasts. But in July more than 5 million people reported themselves “temporarily away from paid work”. The furlough scheme has helped avoid mass redundancies during lockdown, it ends next month. pic.twitter.com/raBoFUA834
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We start with grim news from the UK jobs market. The number of people being laid off has jumped at the fastest pace since the financial crisis, as Covid-19 continues to hurt the UK economy badly.
Redundancies increased by 58,000 on the year, and 48,000 on the quarter, to 156,000.
These are the largest annual and quarterly increases seen since 2009. While redundancies are at their highest level since September to November 2012, the level remains well below that seen during the 2008 downturn.
Over the quarter, there has been a large decrease in the number of young people in employment, while unemployment for young people has increased.