UK economy in 'unprecedented downturn' as activity keeps falling - as it happened

Graeme Wearden

from on 2020-05-21 16:48 (#53QX1)

Rolling coverage of the latest economic and financial news

5.48pm BST

Time for a quick recap.

Another blizzard of economic data has shown that the world economy is being battered by the Covid-19 outbreak, but a slow recovery may

5.30pm BST

That late selloff came after China threatened to hit back against America if it imposes sanctions over the coronavirus pandemic.

The spokesman for the country's parliament, Zhang Yesui, told reporters that Beijing would retaliate if the US introduced legislation last week to give Donald Trump the power to sanction China.

We firmly oppose these Bills, and will make a firm response and take countermeasures based on the deliberation of these Bills.

It is neither responsible nor moral to cover up one's own problems by blaming others. We will never accept any unwarranted lawsuits and demands for compensation.

5.09pm BST

After a late stumble, Europe's stock markets have ended the day lower than they started it.

4.54pm BST

Back in the UK, shoe retailer Clarks has joined the ranks of firms cutting jobs due to the pandemic.

More than 900 head office staff will go, as the Covid-19 lockdown hits sales hard, on top of the problems on the high street.

4.43pm BST

Our US business editor Dominic Rushe reports that some Americans have been struggling to sign on for unemployment benefit, due to huge demand:

Aya Rabbaa, 19, lost her job at an iHop restaurant in Madison, Wisconsin, eight weeks ago and only received her benefits three days ago. I would call and hang on hold for hours or they would hang up," she said.

The college student relied on her wages to pay her expenses and said it had been a real struggle while she waited on the money. They need to do something," she said. People are hungry, people are stressed. Do we live in a third world country or what?"

4.29pm BST

After that positive start, the US stock market is turning south.

The Dow has now dipped by 193 points, or 0.8%, to 24,381. Oil has shed its early gains too, and European markets are in the red too as the closing bell approaches....

U.S. markets are headed lower https://t.co/X3f9cR689V pic.twitter.com/jVmxL4BNGG

MINUS is the new normal. UK 5y govt bond yields turned negative. Rally sending the yield to a record low of -0.014.% pic.twitter.com/y5j4ZJUJh9

4.11pm BST

Our economics editor Larry Elliott says today's PMI reports show we face a long trudge back to recovery, writing:

Well, do you want the good news or the bad news?

The goods news - both for the UK and for the rest of Europe - is that the worst is over. April marked the bottom of the slump triggered by the response to the Covid-19 pandemic. Provided there is no second wave of infection (a pretty hefty qualification, admittedly) last month was as bad as it gets.

3.17pm BST

Just in: America's economy is suffering another slump in output this month as the Covid-19 downturn persists.

Data firm Markit has reported that the US economy is still contracting at a desperately sharp pace, although slightly slower than in April.

Although the overall contraction in new business eased in May, it was still the second-steepest in the series history. Firms continued to report significant decreases in client demand as customers further postponed the placement of orders.

Service sector and manufacturing firms registered the second-sharpest reductions in new orders since the global financial crisis. Foreign client demand remained especially muted, with new export orders decreasing substantially and at only a slightly reduced rate compared to April as lockdowns associated with the virus pandemic persisted across key export markets.

2.57pm BST

The initial claims figures, although bad, don't capture the full extent of the jobs lost in the crisis.

Another 2.2 million new claims were filed through the federal government's temporary Pandemic Unemployment Assistance program. It's designed to help gig economy workers, independent contractors and other self-employed workers, who might not be able file traditional jobless claims.

2.44pm BST

Wall Street is unperturbed by today's US jobless numbers.

The Dow has gained 57 points or 0.2% in early trading to 24,633 points, despite traders learning that another 2.4m Americans are now on the dole.

The S&P total return index down just 7% year to date as financial capitalism shrugs off the suspension of capitalism

2.26pm BST

Back in the UK, workers at Royal Bank of Scotland are preparing to work from home for a while yet.

RBS told staff today that more than 50,00 of them (out of 65,000) won't return to the office until at least the end of September.

2.13pm BST

Several economists are concerned that America's jobless claims haven't levelled out faster:

We are somewhat concerned by the slowing pace of declines in initial jobless claims. Accordingly, we're shifting our timeline (two weeks to the right) for claims to start printing below one million, now in the third week of June. pic.twitter.com/kwCb7g7mRA

In related news, this morning's initial unemployment claims data says "things are getting worse at a slower pace" rather than "things are getting better" despite the moves toward lifting restrictions.

At 2.438M, Initial Jobless Claims came in just above the 2.4M estimate, and just below last week's 2.687M level; this was the 7th weekly decline. Claims peaked on 3/28 but remain EXTREMELY high. The pandemic total is now 38.6M. https://t.co/maIeV4Rfa2 pic.twitter.com/ce2hFFUeRh

2.00pm BST

America has just passed a grim milestone in its unemployment crisis.

Glassdoor senior economist Daniel Zhao has spotted that more jobs have been lost in the last nine weeks than during the last recession a decade ago:

Today's sky-high unemployment insurance claims report brings the total UI claims to 38.6 million and surpasses yet another historical benchmark. In only nine weeks, unemployment claims made during the coronavirus crisis have already exceeded the 37 million claims made over the entire 18 months of the Great Recession.

The coronavirus crisis continues to inflict swift and deep impacts on the labor market at a near unprecedented clip.

1.57pm BST

Before Covid-19, the idea of more than two million Americans losing their jobs in a single week would be unimaginable, let alone 38 million joining the unemployment ranks in two months.

As this tweet shows, the job losses since March absolutely dwarf the impact of the financial crisis - wiping out all the gains since then.

More than 38 million Americans have filed for unemployment over the last 9 weeks. https://t.co/UzUQ6g1i9A pic.twitter.com/YXrE64uhoG

1.37pm BST

Newsflash: Another 2.4 million Americans filed new claims for unemployment benefit last week, as the US jobs crisis deepens.

That's down from 2.6 million in the previous seven days (which has been revised down from 2.9m).

2.4 million workers applied for #unemploymentbenefits in the week of May 10-16 according to the @USDOL's Weekly Unemployment Insurance claims report released today. Since the onset of the #coronavirus crisis in mid-March, 38.6 million workers have filed initial UI claims. (1/4) pic.twitter.com/vHkaotVorh

US Initial Claims: Continuing claims for the week ending May 9, which will inform the official, estimate of the May unemployment report, increased to 25 million, resulting in an insured unemployment rate of 17.2%.

12.33pm BST

Oof! US department store Macy's has warned that its sales have fallen by around 45% in the last quarter, as the coronavirus shutdown drove it into the red.

Preliminary results show that sales at Macy's in February-April fell to between $3,000m and $3,030m, down from $5,504. It made an operating loss of around $1.1bn, down from an operating profit of $203m a year earlier.

Looking back, our performance in February was solid and in line with our expectations, but we saw a precipitous decline in sales with the stores closure in March. As a developed omnichannel retailer, we experienced a steady uptick in our digital business in April, which was encouraging, but only partially offset the loss of sales from the stores.

The digital performance was driven by strong execution and enhanced fulfillment options, including curbside pickup where allowed."

JUST IN: Macy's forecasts a first-quarter loss of up to $1.1 billion, compared with net income of $203 million a year ago. "With two weeks of results from reopened stores, customer demand is moderately higher than we anticipated," CEO says. $M https://t.co/mPL3flRhnc

11.59am BST

This morning's PMI reports from the UK and the eurozone haven't lifted spirits in the markets.

The FTSE 100 is still down 0.8% at 6018 points, a loss of 48 points so far, after the City heard that UK manufacturers and services companies were having such a rough time.

Thursday: risk off tone with stocks down, dollar firm and bond yields edging lower. PMIs still in deeply negative territory.

11.54am BST

Here's our news story on today's UK PMI report:

11.19am BST

Newsflash: UK manufacturing output has fallen over the last quarter at the fastest rate since at least 1975.

Output volumes fell in 15 of 17 manufacturing sub-sectors in March-May, according to the latest healthcheck from the CBI.

These results show that UK manufacturers are still grappling with the impact of the pandemic.

Production levels have fallen even more sharply as firms experience collapsing demand and supply chain disruption, leading some to temporarily shut down their factories. The sector is bracing for what will be a challenging period.

10.55am BST

Duncan Brock, Group Director at CIPS, fears that a second wave of Covid-19 infections could undermine hopes of a recovery (sending the PMI skittering back down to April's record lows).

The minor easing in the downturn compared to last month's figures only serves to highlight the depth of the fall in April's output and does not signal that the pathway is clear for an improvement in the manufacturing and services sectors.

This month saw another steep fall in overall business activity, surpassing for the third time the rates of decline seen during the global financial crisis in 2009. No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.

10.17am BST

Here's Andrew Wishart of Capital Economics on today's UK purchasing managers survey:

Taken literally the fact the flash composite PMI remained well below the no-change level of 50 in May suggests that activity fell further as it should compare activity to the previous month. But many respondents appear to be answering the alternate question of how is activity compared to normal?". So instead it appears to be suggesting that the low point for activity was reached in April, but that it is still well below normal in May.

The recovery in the manufacturing PMI from 32.6 to 40.6 is probably a sign that some industrial plants have reopened on government advice. And the services index recovered from 13.4 to 27.8, in line with anecdotal evidence that firms have restarted limited operations, such as take-out options from restaurants.

Flash UK Composite #PMI at 28.9 in May (13.8 - Apr) to signal further contraction in the UK economy, but with rates of decline softening from April as COVID-19 restrictions were eased. Read more: https://t.co/zGCpgQst0k pic.twitter.com/CSWpXZO47F

10.03am BST

A few weeks ago, there was lots of talk about V-shaped recoveries.

Economists hoped that growth would bounce back sharply from the initial shock of Covid-19, as companies rapidly caught up on lost business.

The PMI data in from the UK and Europe suggests that the outlook is improving. That is to be expected, as the surveys are taken mid-month and economies were more open than they were in mid-April. But with UK Composite PMI at 28.9, albeit up from 13.8 in April, and the Eurozone Composite PMI reading at 30.5 the outlook is still grim. Markets may well take this as a sign that the nadir has been reached, although recovery is some time off."

Weak #PMI readings echo Google's Mobility data that show #UK activity still significantly down on pre-virus levels. More evidence that a 'V-shape' recovery now very unlikely pic.twitter.com/ciZGiJgmg9

This made me laugh! @BertColijn

Despite the improvement in Eurozone PMI, anybody hoping for a v-shaped recovery should go back and pick another alphabet!https://t.co/rGi0tp1d8L

Main message: May was very slightly less bad, but still pretty awful. https://t.co/6aocT8A7W9

9.43am BST

Newsflash: Britain's economy continued to suffer an unprecedented contraction this month.

Both the manufacturing and service sectors are shrinking extremely rapidly as the lockdown continues, according to the latest survey of purchasing managers by IHS Markit.

The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April's record collapse, May saw the second largest monthly falls in output and jobs seen over the survey's 22-year history, the rates of decline continuing to far exceed anything seen previously.

Travel and tourism firms, hotels, restaurants and producers of consumer goods such as clothing were again the hardest hit, reflecting virus containment measures, but this remains a shockingly broad-based downturn with very few companies left unscathed by the COVID-19 pandemic.

9.24am BST

Although a PMI of 30.5 is better than one of 13.6, it's still extremely weak - showing a profound economic downturn this month.

Most European service PMIs jumped more than consensus but remember to interpret them correctly

The service PMIs in Germany and France are around 30, which means that MORE respondents saw a further decrease in activity in May compared to April than vice versa

Really bad numbers!

9.23am BST

Chris Williamson, chief business economist at IHS Markit, reckons today's PMI surveys show that the downturn is bottoming out:

The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April.

Second quarter GDP is still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer.

Eurozone composite PMI for May +16.9pts to 27 after Aprils collapse. Led by services but manufacturing also up. Start of a slow recovery as shutdowns ease.
Similar story in Japan but slower with composite PMI +1.6pts to 27.4. pic.twitter.com/vP9u9odnn1

9.15am BST

Newsflash: The eurozone economy continues to suffer an unprecedented decline this month, although the slump is easing as some Covid-19 lockdown measures are relaxed.

The Eurozone Composite PMI, which tracks activity across the euro area, has risen to 30.5 in May from a record low of 13.6 in April.

The eurozone economy remained stuck in its deepest downturn ever recorded in May due to ongoing measures taken to control the coronavirus disease 2019 (COVID-19) outbreak, according to provisional PMI survey data.

However, the rate of decline eased as parts of the economy started to emerge from lockdowns.

Germany May Manufacturing PMI showed weaker than expected rebound to 36.8 from 34.5 in Apr, vs 39.4 expected. It's a disappointment after pos surprise from France. At least Services PMI rose to 31.4 from 14.9 in Apr, way above 26 exp. Composite PMI beat at 31.4 vs. 26 expected. pic.twitter.com/ZKKTM4eEXR

9.02am BST

Japan has suffered its worst drop in exports since the financial crisis over a decade ago , denting hopes that the world economy could be turning the corner.

Japanese exports slumped by almost 22% year-on-year in April, led by tumbling demand for cars and industrial goods.

Japan is facing slumping external demand; exports plummeted by over 20% y/y in April, while imports were down by a lesser 8% y/y #USDJPY pic.twitter.com/GqEEdAGdo5

8.48am BST

Shares in budget airline easyJet have jumped 5% in early trading, after it announced it will resume some flights from mid-June.

Face masks will be compulsory, as the airline tries to operate while obeying physical distancing rules.

The airline initially will restart domestic routes in the UK and France where it believes there is sufficient customer demand to support profitable flying". The carrier will add further routes in the following weeks, as and when passenger demand rises and lockdown measures ease further across Europe.

The company will introduce enhanced cleaning and disinfection of its aircraft, will make disinfectant wipes and hand sanitiser available on board, and will require all passengers and cabin crew, as well as ground crew, to wear masks. There will be no food service onboard, initially.

8.46am BST

Hotels group Whitbread are the top faller in London, down over 16% after announcing a 1bn rights issue.

Whitbread Plc said on Thursday it would raise 1.01 billion pounds through a rights issue as the company looks to bolster its balance sheet amid the coronavirus crisis, which led to a drop in annual earnings.https://t.co/v9fF9oLE6Q $WTB -11.3%

8.28am BST

Anxiety over US-China relations is weighing on the London stock market.

The FTSE 100 index has dropped by 50 points, or 0.85%, in early trading to 6,016. France and Germany are both down over 1%.

8.17am BST

Overnight, the US intensified its criticism of China by issuing a new report which criticises Beijing activities.

Associated Press has the details:

Beyond its hard-hitting rhetoric against China over its handling of the coronavirus, the White House has issued a broad-scale attack on Beijing's predatory economic policies, military buildup, disinformation campaigns and human rights violations.

The 20-page report does not signal a shift in U.S. policy, according to a senior administration official, who was not authorized to publicly discuss the report and spoke only on condition of anonymity, but it expands on Trump's get-tough rhetoric that he hopes will resonate with voters angry about China's handling of the disease outbreak that has left tens of millions of Americans out of work.

7.54am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Just as anxiety over the Covid-19 pandemic was easing, the prospect of a new US-China trade dispute is looming over the markets again.

Spokesman speaks stupidly on behalf of China, trying desperately to deflect the pain and carnage that their country spread throughout the world. Its disinformation and propaganda attack on the United States and Europe is a disgrace....

....It all comes from the top. They could have easily stopped the plague, but they didn't!

China is on a massive disinformation campaign because they are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!

President Trump escalated rhetoric against China pointing the finger at Xi Jinping for a disinformation campaign and propaganda attacks on both the US and Europe.

Whilst Trump playing the blame game with China is nothing news, this is the first time that he has taken direct aim at Xi Jinping. Previously he has always maintained a strong relationship between the two. This change of tone is making the markets sit up and listen. Riskier assets are out of favour and flows into safe havens are on the rise.

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