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Next week's economics: 1-5 June

Next week will bring more evidence of the economic damage done by the coronavirus lockdowns – including a near-record level of US unemployment
May 28, 2020

Next week will bring yet more evidence on the damage done by the coronavirus lockdowns.

In the US, we could see yet another large fall in employment and rise in unemployment, perhaps taking the rate to 20 per cent – the highest since the 1930s. We should also see the ISM report a huge drop in manufacturing activity.

In the eurozone, purchasing managers’ surveys should confirm that activity in both services and manufacturing remained very low in May. Official figures will also show a rise in the unemployment rate (from 7.4 per cent last month), although this won’t be as great as in the US thanks to job protection measures.

In China, purchasing managers could say that activity has recovered a little since its lockdown was lifted, but that it is now being hit by weak exports.

And in the UK, purchasing managers will also confirm that activity remained very weak in May, having slumped in April.

In this context, the Bank of England’s money stock numbers will be illuminating. Last month, these showed that people repaid consumer debt and increased their bank deposits more than usual simply because with so many shops shut people still in work saved money. But will the same happen next month? With unemployment rising sharply, the numbers of forced savers will be offset by the jobless borrowing more and running down savings. The net impact is hard to predict.

We’ll also see a big increase in lending to companies, thanks to government loan guarantees under the furlough scheme. Last month’s number, though, also showed a big rise in corporate cash holdings. This might well be reversed this month, however.

This crisis is a test for the financial system: how well does it perform one of its fundamental tasks, in enabling people and businesses to cope with temporary shocks? Failure in this regard will bring it further into question.

On Thursday, we’ll see how the ECB is responding to the crisis. It is likely to maintain its subsidies for bank lending and its quantitative easing programme, and promise to retain these for many months. There’s a chance of an interest rate cut, but economists are unsure how much good can be done by more negative rates. All agree, though, that monetary stimulus alone is not enough – which is why ECB president Christine Lagarde might repeat her call for governments to loosen fiscal policy more.