US – Labour market stabilising, but permanent damage significant

While the headlines still look grim, we might be over the worst of the initial hit to the labour market. The unadjusted continuing jobless claims fell in the week to 2 May. This probably understates labour market stress, but we find it to be more reliable than the more timely initial claims data. So far, the bulk of newly unemployed have been temporarily laid off, and surveys suggest most of these expect to return to their previous jobs. However, we expect up to half of these temporary layoffs to become permanent – concentrated in the hospitality sector, where social distancing restrictions are likely to be more prolonged. As a result, while we expect unemployment to decline significantly again over the summer, it is likely to settle at a much higher level than before the pandemic.