Counting the cost of the pandemic

There was good news from the US on the jobs front, with 4.8 million extra jobs created in June. However, two thirds of the job losses of March and April are still to be recovered.

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  1. Charles Stanley

There was good news from the US on the jobs front, with 4.8 million extra jobs created in June, making a two month gain of 7.5m. This still leaves unemployment high, however, with two-thirds of the job losses of March and April still to be recovered.

As the recovery gets underway in many parts of the world, we will start to see more of the longer-term damage the virus and the lockdowns have done. There will be a whole series of announcements of job losses, especially in Europe where government subsidy schemes have so far limited the redundancies.

In the US, more of the sackings occurred upfront, so there are plenty of rehiring to occur. Even there, some businesses and sectors will see more firings as businesses decide on a more restricted output ahead, or as they reduce their footprint to reflect the changed reality. As hotels and restaurants reopen with social distancing rules, they will probably shed some labour relative to pre-crisis levels to reflect the lower revenues they can earn with fewer guests, whilst having to absorb some of the costs of higher staff ratios to cope with new rules.

Empty airports

The aviation industry has been in the eye of the storm for some time. Lockdowns at airports have gone on longer than in other parts of the economy, and recovery of flight and passenger numbers is slow. In an industry renowned for low margins and competitive promotional pricing, many airlines are deciding they need to slim down substantially, accepting lower demand for some time to come. This has a knock on to the airline makers, with both Boeing and Airbus adjusting to many cancelled orders as the airlines struggle to cut their cash outflows. Airbus has just announced 15,000 redundancies from its 134.000 worldwide workforce, where a few months ago it had a full order book and was worried about how to make all the planes customers wanted.

IATA, the global aviation body has estimated a loss of more than $300bn of revenues for airlines this year, putting millions of jobs of risk in the wider world sector and threatening to undermine the finances of many airlines. Some have already received substantial state subsidy, with national carriers back in vogue. Others face expensive financial reconstructions. TUI the travel group has announced 8000 redundancies, Air France 6,500, BA 12,000, Lufthansa 22,000 and Qantas 6,000, amongst others.

The position is no better in traditional shop-based retail. In the US, 2020 has brought high levels of store closures and retail companies seeking protection from creditors, with J C Penny, Macy's, Sears, Gymboree and J Crew amongst those suffering from the hostile economic backdrop. In Europe too, famous names have announced some closed shops will not now reopen. There is a scramble to get rents down and cut back on overextended property empires. Every closed shop brings substantial redundancies from store staff and from all the suppliers and contractors who have worked for them.

Autos in reverse?

It is also clear that pre-Covid levels of output and demand for diesel and petrol cars will not return. Nissan and Renault have already announced factory closures and job losses. Other motor manufacturers are planning fewer employees to help make fewer cars, and some are also going to join the factory closure movement. The long supply chains are being shortened and production is likely to be more concentrated in favourable country locations closer to customers.

There are other badly-affected areas that could be listed. It means that as furlough and short-time working schemes are withdrawn or wound down, companies will decide how many of their former staff they can afford to employ productively. The resulting rise in unemployment will come to haunt governments, who will need to be imaginative to find ways to retrain people who are out of work and to encourage a flexible economy where the new jobs can come.

The future

It is never easy forecasting what those new jobs will look like. Some will be supplying goods and services in a year or two's time that have not been devised yet. There are some likely sources. In the short-term, productivity will be lower as retailers, hospitality, tourism and travel businesses need to have enough staff to supervise social distancing, put in more service and higher cleaning standards to comply with new rules. At the same time, the online retailers and take away catering outlets will need more delivery staff and more ability to locate goods and prepare meals and drinks for the delivery and take away trades.

There will be a further explosion in jobs related to the digital advance. More people will be needed to install broadband, raise its speeds and service quality, provide add-ons to the network, supply new generations of smartphones, pads and laptops. There will be more drones, more artificial intelligence, more apps, more security and surveillance.

The West will be engaged in a continuing battle against criminal gangs trying to disrupt the internet for gain, and against rogue states trying to bring parts of the western system down. We also await the details of how the EU and various European national governments are going to pump prime and spend their way to a green revolution.

So, what is the market significance of all this? The scale of human misery from more redundancies will be worrying. It will highlight the financial and profit weakness of many companies stranded in the wrong areas with out of date business models. It will dampen consumer demand a bit, making it more difficult for everyone. It will take time to retrain, but there will be new job vacancies available as the world economy tries to rush five years of digital change into as many months, adjusting abruptly to new rules.

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