US unemployment has risen to its highest rate since 1940, next week’s numbers could show. Economists expect Friday’s data to show that the economy lost millions of jobs in April, pushing the unemployment rate up to over 13 per cent, or 22m people. Some think the rate could eventually hit 20 per cent.
This, of course, reflects the fact that the US is in deep recession. Wednesday’s official data will show that GDP fell at an annualised rate of around 2 per cent in the first quarter. But this is just the start. Economists expect a huge slump in the second quarter. And Friday’s ISM survey will corroborate this, showing that manufacturing activity collapsed in April.
We’ll see the Federal Reserve’s response to this on Wednesday. It will repeat that it will keep the Fed funds rate close to zero and buy Treasury and mortgage bonds until it is confident that the economy is mending. This might take until next year.
Unemployment is also rising in the eurozone, next week’s numbers will show – although the rise will be less sharp than in the US, thanks to greater restrictions on firing workers and to the job protection schemes that many governments have put in place.
Other eurozone data will show that inflation has fallen, thanks in part to the slump in oil prices. The overall rate could be below 0.5 per cent and even excluding food and energy it could be only around 1 per cent.
We’ll see the European Central Bank's (ECB) response to all this in its regular press conference on Thursday. It is likely to continue to regard targeted longer-term refinancing operations as a major means of support – in effect subsidies to banks to encourage them to lend. Wednesday’s figures should show that they are doing just this: the ECB should report a rise in lending to companies and individuals.
In the UK, the CBI’s report on retail sales will show that supermarket sales have risen simply because we are eating more at home as pubs and restaurants have shut, but that sales elsewhere (which is the majority of them) have collapsed.
Bank of England data on Friday should show that consumer and corporate borrowing rose in March, even before the government’s loan guarantee scheme began. This is as it should be: the point of the financial system is to smooth out our spending in the face of variations in income. If lending does not rise, therefore, the system is failing.
