Newsletter: China’s Labor Market Is Worse Than It Looks

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Misunderestimated

The coronavirus pandemic has barely touched China’s official jobless rate, which inched up from 5.3% in January to just 6% most recently. The reality on the ground appears to be worse. Millions of laborers who lost their jobs weren’t counted in China’s headline unemployment rate—and many still haven’t returned to work. Others found new jobs but had to accept pay cuts or fewer hours. UBS estimates the number of people not working in early May fell to between 33 million and 40 million, down from 70 million to 80 million in March. That is far more than the roughly 26 million captured by the government’s unemployment survey of people in cities in March, when China’s economy was still reeling from the virus, Chao Deng and Jonathan Cheng report.

If the job market doesn’t fully revive, it could reverse advances for China’s middle class and jeopardize one of leader Xi Jinping’s top policy priorities: eliminating poverty by this year. It could weigh on consumption, setting back the Chinese economic rebound many people have hoped will pace the rest of the world. It could also lead to unrest, Beijing’s biggest fear.

WHAT TO WATCH TODAY

European Central Bank President Christine Lagarde appears before the  European Parliament’s Committee on Economic and Monetary Affairs at 9:45 a.m. ET.

TOP STORIES

This I Promise You

The Federal Reserve meets this week. Officials are thinking about a new tool that would reinforce promises to keep interest rates low by committing to buy Treasury securities in whatever amounts are needed to peg certain yields at low levels. Fed officials aren’t prepared to announce any decision on so-called yield caps when their two-day policy meeting concludes Wednesday. With rates near zero and unlikely to go lower, two other policy questions must get resolved first: how to manage their pace of bond purchases and how to communicate their long-run intentions, using so-called forward guidance, Nick Timiraos reports.

Italy came into the coronavirus crisis with a weak economy and the biggest pile of government debt in Europe. Now, the European Commission forecasts the country will endure one of the trade bloc’s most severe downturns and shrink 9.5%. Rome has promised €80 billion ($90.3 billion) in direct spending and up to €750 billion in loan guarantees to cushion the effects of the crisis. That is expected to push the country’s debt pile to 159% of GDP in 2020, its highest ever. The market reaction? Meh. The European Central Bank’s aggressive stimulus has narrowed the gap between yields on Germany’s and Italy’s bonds, a sign that financial stress in the eurozone is abating, Anna Hirtenstein and Pat Minczeski report.

Learning to Fly

U.S. airlines got $25 billion in stimulus. They’re still expected to shrink, with fewer planes flying, fewer flights and fewer employees after restrictions related to federal money expire. The coming job losses are a sign of how the government’s broad efforts earlier this year to support industries and preserve jobs as the economy shut down have been overwhelmed in some instances by the financial devastation the Covid-19 pandemic has generated, Alison Sider reports.

American oil producers are reopening the spigots. Scores of shale drilling companies turned off wells to reduce output when U.S. oil prices fell to negative territory in late April. Now that more of the world is reopening and prices are rebounding to nearly $40 a barrel, companies are starting to turn some of those wells back on. Even so, American oil output is still widely expected to drop in 2020. That is because shale wells lose steam quickly, and companies have sharply cut back on the number of new wells they are drilling. The decline in new oil-drilling activity is likely to remain a drag on employment and the national economy, Rebecca Elliott reports.

Reopening Plan

Some U.S. states are reporting a rise in new Covid-19 cases as they lift restrictions meant to slow the virus’s spread. California, Utah, Arizona, North Carolina, Florida, Arkansas and Texas, among others, have all logged rises in confirmed cases, according to a Johns Hopkins tabulation of a five-day moving average, Talal Ansari and Brianna Abbott report.

New York City faces its next big test: reopening. The U.S. city hit hardest by the pandemic plans to begin a phased reopening of its economy today as it braces for a possible second wave of the coronavirus. Nonessential retail businesses, manufacturing companies and construction sites will resume operations.

Protests are complicating efforts to track the coronavirus. Public-health doctors say the federal government hasn’t played a leading role in urging broader testing, so mayors and local officials are increasingly thrust into the breach, Thomas M. Burton reports.

Yes, lockdowns cost jobs. This doesn’t mean the lockdowns are mistakes: The imperative to save lives might warrant such measures despite their economic costs, especially during the early days when so much about the infection wasn’t clear. But new research points to the case for targeted curbs instead of sweeping orders, Greg Ip writes.

Case study: While Denmark locked down its economy, Sweden didn’t. Newly registered unemployed rose more in Denmark than in Sweden, and retail sales fell more in Denmark than in Sweden.

WHAT ELSE WE’RE READING

The U.S. unemployment rate is higher than it looks. “The official unemployment rate rose from 3.5% in February 2020 to 13.3% in May (down from its value in April). Even this very large official increase understates the increase in the unemployment rate from a historically-comparable perspective because it counts an extra 4.9 million people who were “not at work for other reasons” as employed and also because 6.3 million people have left the labor force since February, more than would be expected even conditional on this large increase in unemployment. Adjusting for these factors our ‘realistic unemployment rate’ was 17.1% in May, down from the April value but still higher than any other unemployment rate in over 70 years,” Jason Furman and Wilson Powell III write at the Peterson Institute for International Economics.

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