It is a tragedy that investors hate uncertainty. But this year has been unusually chaotic even before the leader of the world’s largest economy and his wife gave a positive test for Covid-19. Diagnosis is a new psychological blow to recovery that was already losing steam. Lack of certainty can be just as financially damaging this year.
“In the wake of the Covid-19 epidemic, every measure of uncertainty we have considered has risen sharply. Most of the measures have reached all-time highs,” the group of economists who created the index wrote in a working paper published in June by the National Bureau of Economic Research. .
Researchers estimated in April that half of the expected economic contraction caused by the epidemic would result from increased uncertainty.
How it happens: It has been clear for a while that 2020 will go down as an extraordinary unsettled year. But the level of uncertainty is really important for companies, workers and investors.
When faced with uncertainty, consumers typically spend less and save more. Companies will cut production, investment and jobs. Financial markets become more volatile and increasingly difficult to trade.
It is mainly because uncertainty overshadows the future. Imagine, for example, a small business owner or CEO who needs to decide whether to install a new production line. Doing so means spending money that won’t be realized if the project is never completed – waiting for the owner to clarify is a very good reason.
The same principle applies to consumers. Large purchases are delayed in homes involved in high uncertainty risks. Research suggests that people are especially cautious when their job prospects are unclear.
Current status: Coronavirus is a strong threat in most parts of the world outside of China, and the U.S. Will see the election as another source of uncertainty. Before taking a positive test for Covid-19, Trump refused to guarantee a peaceful transition of power, threatening elections without a historical precedent and threatening a potential constitutional crisis.
The news that President Trump and the First Lady tested positive for Covid-19 has brought the epidemic back to market attention and, with a few immediate answers, has raised many questions. “Kit Jux said on Friday.
“We now understand that the virus affects most people mildly and a very small minority very severely … However, the path of the election campaign will inevitably change and the uncertainty has clearly increased.”
Case study: Need an example of how uncertainty hurts the economy? Look no further than the United Kingdom.
The coming weeks will be crucial. A new deal with the European Union will help limit further losses to businesses as they work harder to recover from the epidemic, which caused UK GDP to fall by 20% in the second quarter.
But years of uncertainty have already caused significant damage to the country’s economy. In the three years since the Brexit referendum in June 2001, GDP growth has fallen by almost a full percentage point to 1.6%, according to analysts in Berenberg.
U.S. Job recovery is rapidly gaining momentum
U.S. Job recovery runs on steam.
Not great: The 1.5 million jobs added to Job Gust significantly slowed employment growth. The July figure was 1.8 million.
And yet, economics added more than 1 million jobs per month between May and Million Gust, but regained more than half of the lost jobs, before the country hit the Covid-19, down from 10.7 million jobs since February. And the number of permanently lost jobs continues to rise.
Some companies announced massive layoffs last week, which will be a further drag on recovery recovery in the coming months. All layoffs were announced last week by Disney, United and American Airlines.
Andrew Chamberlain, Glasdor’s chief economist, said on Friday that a recent report had revealed a “bilateral economy”.
“More than 13. million million Americans are out of work when anger comes to Covid-1ra, while millions of new jobs are added to other pockets of the economy,” he said.
Now the next
Monday: ISM Non-Manufacturing Index
On tuesday: Earnings of Levi Strauss, Jerome Powell Speech
Wednesday: Fed minutes, U.S. List of crude oil, German production data
Thursday: U.S. Unemployment claims, Delta Air Lines and Domino’s Pizza earnings
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