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From the USA to China it’s jobs, jobs, jobs – update from John Redwood

The Chinese authorities seek to communicate a sense of calm and order. The official urban unemployment rate is still around 6%, though a lot of itinerant workers appear to have left the urban areas where the better paid jobs are. In practice there is concern about all the young people coming into the labour market, and the damage done to output by the pandemic worldwide. Domestic demand is down for some services affected by social distancing, and overseas demand is down for manufactures.

The People’s Bank of China wisely asserted its wish to follow the guidance of President Xi Jinping’s thought and to earnestly implement the guidelines of the fourth plenary session of the 19th CPC Central Committee in their recent Monetary Policy Committee. They went on to take actions to ease credit especially to small businesses in the private sector, probably thinking that might do most to create jobs. The Bank has also recently strengthened guidance about bond defaults, probably in anticipation of more to come.

China is a one party state with strong policing to ensure support for the government view, but it is also a country where protests can suddenly emerge especially if the system does not deliver the economic goods. The People’s Bank reaffirmed that policy is designed to deliver security in six areas, with jobs and livelihoods as the first two. We should expect more stimulus policy as a counterpoint to the more aggressive foreign policy stance, as relations with the west continue to deteriorate.

In the USA the nature of the jobs crash is becoming clearer. The job losses have fallen most heavily on the lower paid and unskilled. Most better paid and qualified people have adapted to home working whilst hospitality and leisure staff have lost their livelihoods. The rapid recent recovery in jobs has only replaced one third of the massive losses during lockdown so far, and the labour intensive areas badly affected by social distancing and consumer reluctance are struggling. Some restaurants have not re-opened at all, and those that are open have to restrict the number of covers. Globally it is suggested only 60% of restaurants are open to take bookings.

The better off have not been spending so much of their incomes owing to the physical restrictions, with some perhaps also wanting to save as a precautionary measure. Governments have to induce a feeling of greater confidence to encourage more spending, but hold back to the extent they judge necessary to continue containing the virus. Anti-virus policies require the opposite to job creating policies in many areas.

It seems likely governments will look for more measures of limited duration that can boost consumption and get big markets like housing and cars moving faster. They will also hope they can contain the virus with local lockdowns and social distancing, aware of the huge economic damage total lockdown caused. In the USA it is thought one third of the lost jobs were from small businesses that may not trade again. That means a big need for new enterprises and new uses for those buildings that they traded from. As the recovery moves beyond the stage of putting employees back to work who were furloughed or easily available to re hire so it needs new enterprises and jobs to sustain it. Jobs are at the centre of current economic policy everywhere. Expect more credit to be made available by central banks, and more tax breaks and subsidies by governments who need people to spend more. It looks as if the People’s Bank of China in its understated way, is coming to aid the global Central Banks as they battle to raise consumption and business activity through easy credit.

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