The aggressive spread of the COVID-19 virus, and the unprecedented containment measures put in place by governments around the world, is already having a significant impact on the global economy.

This impact has been acutely felt in regional labour markets, with the widespread closure of workplaces and strict social distancing measures leading to a significant contraction in businesses revenue across a range of industries. In response, we have seen many employers either shed staff at an aggressive rate or seek financial assistance from governments where available in order to meet payroll demands during the worst of the crisis period.

Since the beginning of the pandemic, local governments have unveiled a range of programmes intended to protect jobs and support households. We have, however, seen contrasting approaches among the major economic areas on how to deal with the disruption, particularly between the US and Europe.

We outline below how the job markets of the main economies have performed thus far, and express our view on what impact these contrasting labour market performances could have on the foreign exchange market.

Figure 1: Unemployment Change during COVID-19 pandemic [select countries]

Figure 2: Unemployment Change during COVID-19 pandemic (% of labour force) [select countries]

Source: Refinitiv Datastream Date: 20/05/2020

*April data not yet available

^ all data seasonally adjusted

United States

The US government unveiled a massive $2 trillion stimulus package in March intended to soften the economic blow caused by the virus-induced lockdowns. These unprecedented measures include sizable allowances for smaller businesses and a hefty increase in unemployment insurance. Unlike in Europe these programmes have, however, been very much geared towards providing support for those who have been laid off, rather than keeping them in employment.

This lack of support for keeping employees on payrolls, and the country’s much more fluid “hire and fire” system, has been reflected in the most recent economic data. A total of approximately 36 million Americans have filed for unemployment benefits since the onset of the crisis in mid-March at the time of writing (Figure 3), equating to around 22.5% of the country’s total labour force. For context, the peak weekly job losses during the height of the 2008/09 global financial crisis was 665k, less than one-tenth of the peak during the current crisis.

Figure 3: US Initial Jobless Claims (2008 - 2020)

Source: Refinitiv Datastream Date: 20/05/2020

The April nonfarm payrolls report was similarly disastrous. A record 20.5 million jobs were lost in the US last month (Figure 4), by far the most on record. The official rate of unemployment also jumped to a series high 14.7%, a more than 10 percentage point increase on a month prior. This does, however, only cover the period through the first half of the month - the actual jobless rate is much higher in reality and likely in excess of 20%, which would be its highest level since the 1930s.

Figure 4: US Nonfarm Payrolls (2008 - 2020)