Layoffs: Temporary Or Permanent? – October 13, 2020

There is a global race on between, on the positive side, a medical breakthrough and more normal economic and social mobility, versus mounting permanent layoffs. As highlighted in a just-published report, there was an unprecedented surge in U.S. layoffs this spring, most of which were initially seen as temporary in nature. However, as this surge has been unwinding, there has been a significant parallel rebound in permanent layoffs. The latter historically was a lagging cyclical economic indicator, but is still worrisome since it may persist for some time, depending on medical developments, fiscal policy, and whether economic “animal spirits” revive after this year’s shock. Permanent layoffs undermine sentiment and consumption, and thus will be a critical variable to monitor around the globe.

The bottom line is that if a medical breakthrough takes too long to arrive, then permanent layoffs may yet rise sufficiently to unnerve still-hopeful equity investors. For now, the consolidation phase in equities will likely persist.

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