Investment Market News

The upcoming cliff edge?

Guest Post by Ned Davis Research

According to NDR, the strong rebounds in economic activity observed upon reopening after lockdown could be at risk amid expiring stimulus. One crucial level of stimulus has been income support. With some social distancing orders still in place globally, many households have seen job losses, making these income subsidies  essential to sustain the recovery.

For many countries, income support has recently been extended. Last week, Germany agreed to lengthen its  job protection program, which can cover up to 87% of wages, until the end of 2021. France introduced a long-term  furlough program that could last up to two years.

But a few large economies have reached a tipping point. In the U.S., the CARES Act unemployment subsidy expired on July 31.

Job Postings Have Plunged Globally

While President Trump offered a $300/week benefit, half of what is was before, the funds
will only last in the short-term and states need to comply with the program. Congress
is still in disagreement over how much the subsidy should be. The U.K. also faces a cliff
edge this coming October, when its current furlough scheme is set to expire. While
many have argued that the plan should be extended, Chancellor of the Exchequer
Sunak insists that it should be phased out as planned.

The expiration of these programs is bound to have a detrimental impact on the economy
given the plunge in job availability caused by the pandemic. The chart above shows Indeed
job postings by country. Every economy is clocking in a 20% decline or more from a
year ago, with the U.K. facing the biggest challenge, down 56% year over year.

The trade-off, however, is not a simple one. While these schemes remain critical
in eliminating a lot of short term pain, they may keep people out of work longer
than necessary, delaying an inevitable reallocation of labor resources.

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This content was provided by Ned Davis Research – See NDR Disclosures

Investment Advisory Services offered through BCJ Capital Management LLC., an (SEC) Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. 

BCJ FG 20-116

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