Graeme Wearden 

UK house prices fall as Covid-19 job losses surge, but US employment rises – as it happened

Rolling coverage of the latest economic and financial news
  
  

An estate agent in the Knightsbridge area of central London, Wednesday.
An estate agent in the Knightsbridge area of central London, Wednesday. Photograph: Matt Dunham/AP

Afternoon Summary

Time for a recap, after a day of grim job losses....and encouraging economic data.

The Covid-19 pandemic has hammered Britain’s travel industry and retail sector today, with thousands of jobs at risk.

SSP, which runs the Upper Crust chain, began the day by announcing up to 5,000 job losses - or over half its workforce. It warned that business will not recover for months, given the slump in flights and railway journeys.

Ryanair swiftly followed, saying that 3,500 jobs would be cut unless staff agreed pay cuts. The pilots’ union have now said they would accept a cut to earnings:

With Airbus announcing 15,000 job cuts last night (including 1,700 in the UK) and easyJet cutting 4,500 across Europe, the travel industry is looking bleak.

So is retail! John Lewis hit its staff with bad news this morning - some stores won’t reopen, due to the pandemic, and their bonus is being cut too.

Luxury department store Harrods also plans 700 job cuts, while Sir Philip Green’s Arcadia is axing 5,00 roles.

UK factories have also cut their workforce last month, even though the downturn in manufacturing in Britain - and beyond - appears to be easing.

UK house prices have also been hit, falling on an annual basis for the first time in eight years.

Germany has also reported a rise in unemployment, up 69,000 in June.

But US companies have hired nearly two million more staff this month, according to the ADP payroll company, as states have reopened their economies.

US factories also reported a jump in new orders last month, as the slump in activity during the pandemic eases.

German biotech firm BioNtech and pharmaceuticals giant Pfizer cheered investors, by reporting encouraging early results from their Covid-19 vaccine trial. This dragged European stock markets off their earlier lows

That’s probably all for today. GW

In another encouraging sign, the Institute for Supply Management has reported that US factories returned to growth last month.

Its PMI index has jumped to 52.6 for June, strongly back into growth, from just 43.1 in May. ISM’s New Orders index surged, suggesting a significant turnaround in fortunes last month.

Here’s some reaction:

Record jump in US manufacturing PMI

America’s factories have also reported that the Covid-19 slump has bottomed out.

The US manufacturing PMI, which tracks activity in the sector, has surged to 49.8 in June from 39.8 in May. That’s the biggest jump on record, showing a major improvement.

Factories reported that new orders stabilised, helping to curb the slump in production.

HOWEVER, although this looks like a V, it does not mean that the US economy has recovered. A PMI of 50 shows stagnation, not strong growth. But it’s an encouraging start.

Chris Williamson, Chief Business Economist at IHS Markit said:

“US manufacturers have reported a marked turnaround in business conditions through the second quarter, with collapsing production and demand in April at the height of the COVID-19 lockdown turning rapidly to stabilisation by June. The PMI posted a record 10-point rise in June amid unprecedented gains in the survey’s output, employment and order book gauges.

The record rise in the New Orders Index, coupled with low inventory holdings, bodes well for a further improvement in production momentum in July. A record upturn in business sentiment about the year ahead likewise hints that business spending and employment will start to revive.

However, while the PMI currently points to a strong v-shaped recovery, concerns have risen that momentum could be lost if rising numbers of virus infections lead to renewed restrictions and cause demand to weaken again.

Over in Brazil, the manufacturing slump has bottomed out.

Brazil’s factories have reported a pick-up in output and new orders last month, lifting its manufacturing PMI back over 50 points, and into growth.

Wall Street has opened higher, as traders welcome the encouraging early stage results from the Pfizer/BioNTech Covid-19 vaccine tests.

Fresh from its best quarter in over 20 years, the Dow Jones industrial average has gained 163 points, or 0.6%, to 25,976. The S&P 500 is 0.3% higher.

Vaccine news: German biotech firm BioNtech and pharmaceuticals giant Pfizer have reported some promising results from their early trial of a Covid-19 vaccine.

The two firms report that the early-stage drug had shown potential -- human trialists who received the drug developed antibodies against Covid-19, at higher levels than often seen in patients who caught the virus.

This shows that the vaccine “yields immune activity and a strong immune response,” says BioNtech CEO Ugur Sahin. They now plan to conduct wider trials.

This is cheering investors, who are desperate for good news about a vaccine that could end the pandemic and allow economies to reopen.

Shares in both companies have jumped, and the wider market is also shaking off its earlier losses.

Economists are welcoming today’s ADP Payroll report, and the news that 2.4 new jobs were created in June:

There’s also astonishment that May’s data has been revised so dramatically, from 2.7m jobs lost to 3m created. ADP’s report is based on actual payroll figures, not finger-waving estimates, but clearly the pandemic is making it harder to produce accurate data.

ADP: US companies hired 2.4m new staff

Just in: US companies hired nearly 2.4m extra staff in June, as America’s economy emerged from lockdown.

Payroll company ADP has reported that the labor market strengthened last month, with private sector employment up by 2.369m.

Small business (with less than 50 staff) hired 937,000 more staff, with medium-sized firms taking on 559k and large companies (at least 500 staff) taking on 873k.

Service sector firms took on 1.9m new workers, ADP says, including nearly one million in leisure and hospitality, after States eased Covid-19 restrictions. Manufacturers hired 457k more staff.

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said that small business hiring picked up in the month of June, adding:

“As the economy slowly continues to recover, we are seeing a significant rebound in industries that once experienced the greatest job losses.

In fact, 70 percent of the jobs added this month were in the leisure and hospitality, trade and construction industries.”

This will please the White House - although the recent lockdowns re-imposed in states such as California, Texas, Florida and Arizona could lead to fresh job losses.

ADP has also pulled a screeching u-turn on May’s numbers. Last month, it reported that 2.76m jobs were lost. It now thinks that 3m were created!

That’s an astonishing revision.

The job cuts announced today by John Lewis and Harrods show that department store are reeling from the pandemic, writes my colleague Sarah Butler here:

European stock markets have all lost ground this morning. Germany’s DAX has shed 1.5%, after Deutsche Bourse fixed the technical problems which hampered trading earlier today.

Back in the markets, anxiety about the Covid-19 pandemic is pushing shares down.

The FTSE 100 has shed 63 points, or 1%, to 6106, which would be its lowest closing level in two weeks.

The top fallers are all companies who would suffer if the coronavirus pandemic intensified. Broadcaster ITV, which suffered a slump in advertising when the crisis began, is the top faller, down 4.5%. Jet engine maker Rolls-Royce has shed 4%, as has conference and events group Informa. IAG, which owns British Airways, has lost 3.3%.

Sir Philip Green is also wielding the jobs axe, according to fashion trade magazine Drapers.

It reports that Green’s Arcadia group is cutting 500 head office jobs, or one in five positions. And again, the Covid-19 lockdown is responsible, with Arcadia anticipating weak retail sales for some time.

Drapers’ Grace Whelan says:

In the email to staff, seen by Drapers, chief executive Ian Grabiner said:

“We are continuing to live through an unprecedented global crisis and, as you know, our stores and head office temporarily closed on 20 March. Although our digital platforms provided us with some much-needed sales whilst our stores were closed, it certainly didn’t make up for the loss of sales from our stores and franchise partners.

“We and our partners are unlikely to see the same level of footfall on the high street anytime soon. We can’t ignore the impact this will have on our business and we need to adapt. We have already been reducing our store estate over the last few years but we also need to generate further cost savings across our company in order to ensure we have a solid foundation for the future. In order for us to achieve this, we need to restructure our head office to support a more focused and future proofed organisation.”

It is understood that staff will receive more information about their individual situations later today. Drapers understands that the job cuts impact various teams, including those in buying and design across Topshop, Miss Selfridge and Dorothy Perkins.

S&P: Brexit and Covid-19 could be 'perfect storm'

Ratings agency S&P has warned that the UK could be heading into a ‘perfect storm’ of economic misery.

In a new report, S&P says that Britain is vulnerable to a second-wave of coronavirus infections, followed by an economic jolt if it can’t agree a free trade deal with the EU before 2021.

It says:

“A second, bigger wave of (coronavirus) infections in autumn, then followed by a switch to WTO trade rules in January would be a perfect storm.”

S&P has also slashed its UK GDP forecast for 2020 to an 8.1% contraction (grim, but less severe than the IMF’s forecast of a 10.2% plunge).

Even Harrods isn’t immune to the economic cost of Covid-19.

Business Insider is reporting that the Knightsbridge-based luxury department store is cutting almost 700 jobs, as it tries to cut costs.

Although Harrods reopened last month (with social distancing rules), the slump in international travel has badly hurt the store, which is usually very popular with well-heeled tourists.

BI says:

Harrods CEO Michael Ward told employees about the cuts in a memo early on Tuesday, June 30.

“With a heavy-heart, today I need to confirm that due to the ongoing impacts of this pandemic, we as a business will need to make reductions to our workforce,” Ward said, adding that 14% of its 4,800 staff would be impacted.

“The necessary social distancing requirements to protect employees and customers is having a huge impact on our ability to trade, while the devastation in international travel has meant we have lost key customers coming to our store and frontline operations.

The Covid-19 pandemic is also forcing job cuts at retail group John Lewis, according to reports this morning.

The Evening Standard says Sharon White, its new chair, has warned staff that some stores will close permanently, resulting in job losses. The blow comes as John Lewis also announces another raft of store reopenings.

Here’s a flavour:

In a bombshell letter to staff, Sharon White this week told 80,000 staff at the mutual, which also includes Waitrose, that its prized bonus will likely be ditched next year as the company wrestles to improve profitability.

At the start of the Covid crisis, sources at the group warned it was unlikely all 50 of its department stores would reopen after the lockdown. White confirmed plans to close a several unnamed shops, with staff informed in mid-July. Around 20 stores have reopened since non-essential retailers were given the green light to reopen on June 15 with distancing measures in place. Plans to open a further 10 were announced today, including Oxford Street on July 16.

John Lewis is also planning to vacate one of its two large London offices, in response to the jump in home working. More here.

German stock market suffers outage

European stock markets have made a lacklustre start to the third quarter of 2020.

The UK’s FTSE 100 has gained 12 points, or 0.2%. Surgical devices maker Smith & Nephew is the top riser (+5%) after reporting that its sales slump eased in June.

France’s CAC has lost 0.15%, with hotel group Accor down 3%.

But traders in Germany have been hit by technical problems at the stock exchange. The Eurex exchange are trying to get systems working right now, after a two-hour outage.

The problems disrupted derivatives trading and stock markets in several Central and Eastern European countries, and prompting Denmark to postpone a bond auction.

Bloomberg explains:

Trading issues on the Eurex Exchange, one of the main platforms for futures products, hampered bond sales in Europe. Prices for German bund futures hadn’t updated since 7:47 a.m. in London, while Denmark postponed a bond auction due to the technical difficulties.

Stock trading in Vienna, Prague, Budapest, Ljubljana and Zagreb was also down, as these venues share Deutsche Boerse’s T7 trading infrastructure. As recently as mid-April, another outage of the T7 system hobbled trading across the same set of Central and Eastern European stock markets.

Dave Atkinson, UK head of manufacturing at Lloyds Bank, also fears a flood of job losses at UK factories -- even if the economy returns to growth.

Manufacturers are now bracing themselves for the second half of the year in the knowledge that a reckoning looms. The winding down of the furlough scheme by the autumn, and lower business levels in a number of subsectors, means more redundancies are likely.

History shows that, sadly, more firms tend to face the risk of failure coming out of recession due to cashflow challenges than going into one. This is compounded by many manufacturers having to manage higher debt levels that they would normally operate with. Understanding and managing the risks of overtrading for businesses of all sizes will be critical.

The sector will need to continue to show resilience, agility and careful planning, to battle through such challenges.”

UK factories keep cutting jobs

The pandemic is forcing Britain’s manufacturers to keep slashing jobs.

Data firm IHS Market reports that employment at UK factories fell for the fifth consecutive month in June.

It says:

Although the rate of decline eased further from April’s record it remained among the steepest registered in the 28-year survey history. There were reports of redundancies, cost control efforts, workforce restructuring and the non-replacement of leavers.

Manufacturers also reported that new orders kept falling in June, although output did rise as more factories returned to work.

This lifted the UK manufacturing PMI to 50.1, just above stagnation.

Rob Dobson, director at IHS Markit , fears that job losses will accelerate as the UK government winds up its furloughing scheme:

“The main focus is now shifting towards the labour market. Concerns are rising about the potential for marked job losses, especially once the phase out of government support schemes begins. The news on that footing is less positive, with June seeing a further reduction in staffing levels and, although easing sharply since April’s record, the rate of job loss remains among the steepest in the 29-year survey history.

Economic conditions will need to improve markedly across the UK, or some support retained, if the labour market downturn is to avoid becoming more entrenched through the remainder of the year.”

Here’s our news story on the downturn in UK property prices:

UK supermarket chain Sainsbury has reported a surge in sales during the pandemic....and a big jump in costs too.

Grocery sales rose by 10.5% in the last 16 weeks, as consumers stocked up on food supplies when the lockdown began. Online sales doubled, amid the scramble to secure a precious home delivery slot.

Its Argos catalogue division also saw strong demand, with sales up 10.7%. Home delivery sales surged 78% and click and collect sales rose by over 50%.

But clothing demand slumped by a quarter, with much of the population staying at home.

And overall, the profit impact of Covid-19 is expected to be more than £500m, which will be “broadly offset” by business rates relief and stronger grocery sales.

Sainsbury told shareholders:

We believe it is appropriate to remain cautious about the sales trajectory through the remainder of the year given the weather benefit to date and a likely further weakening of consumer spending.It remains impossible to predict the full nature, extent and duration of the impact of COVID-19 on sales and costs.

Our base case scenario continues to underpin an expectation of broadly unchanged Group underlying profit before tax for the full year.

Unemployment rises in Germany

The Covid-19 pandemic has driven unemployment up in Germany, although not by as much as feared.

The Labour Office has reported that an extra 69,000 people were out of work last month. That drives the German jobless rate up to 6.4% in June, from 6.3% in May.

Economists had expected the jobless total to rise by 120,000, pushing the unemployment rate to at least 6.5%.

Germany’s ‘short-time’ state aid scheme, which allows companies to temporarily cut working hours during an economic downturn, appears to to be helping.

Italy’s factory sector slump also seems to be easing.

Firms reported that output actually rose in June compared to May, as plants were able to reopen. However, new orders kept falling, highlighting the slump in global demand.

Italy Manufacturing PMI rose to 47.5 in June, from 45.4 in May, showing a smaller contraction.

Updated

Over in Spain, the factory slump appears to be bottoming out.

The latest Spanish manufacturing PMI, which measures activity in the sector, has jumped to 49 for June from 38.3. That’s close to stabilisation.

Factory bosses reported that production and new orders continued to fall in June, but at much slower rates. Many were forced to impose reduced working hour, or cut staff, despite the easing of lockdown measures.

But encouragingly, confidence about the future strengthened and returned to positive territory during June.

Ryanair is threatening to add to the swathe of job cuts across the travel industry, unless staff agree a pay cut.

Back in May, Ryanair announced it would cut 3,000 pilots and cabin crew positions. This morning, CEO Michael O’Leary declared that some of these cuts could be avoided, if staff agreed lower wages.

He told the BBC that:

“We’ve already announced about 3,500 job losses but we’re engaged in extensive negotiations with our pilots, our cabin crew and we’re asking them to all take pay cuts as an alternative to job losses.

“We’re looking from 20% from the best paid captains, 5% from the lowest paid flight attendants and we think if we can negotiate those pay cuts by agreement, we can avoid most but not all job losses.”

O’Leary, who has taken a 50% pay cut himself, also blasted the government’s “stupid” plan to make people self-quarantine for two weeks when they enter the UK. He told Sky News that these “badly thought-out, badly-implemented policies” were hurting the travel industry during the crucial summer holiday period.

Updated

Despite these recent falls, UK houses are still pretty pricey when compared to wages:

Estate agents: it's not a crash

Britain’s estate agents are insisting that the property market isn’t about to collapse.

They’re arguing that the 3.2% drop in prices during May and June is a ‘reset’, and that demand will pick up now that the economy is reopening - and house viewings are allowed again.

Lucy Pendleton of estate agents James Pendleton, argues the market is showing resilience, given the scale of the pandemic.

“Prices are down by a whisker annually but what is remarkable is how soft a landing the market has had given the scale of the disaster that has unfolded in the past few months.

“Nationwide’s reading of the situation is totally in line with recent indications that the prices being achieved on the doorstep have slipped to 2% or 3% below asking prices on average.

“June was the first full month of trading since the property market came back to life post-lockdown and these sellers will be those highly motivated to move through necessity. That pool of vendors will shrink rapidly and that could put a floor under prices.

Jonathan Hopper, CEO of Garrington Property Finders, reckons the lockdown will have forced some people to move house -- perhaps to a property better suited to home-working:

“So far this is a hard reset for the market rather than a collapse. The gains of the ‘Boris bounce’ seen at the start of the year have been swept away, and the market is transitioning to the ‘new normal’.

“With estate agents across the UK at last able to conduct viewings, both buyers and sellers are feeling their way on price.

“While the full financial impact of the pandemic has yet to feed through into the wider economy, in the property market the mood among buyers is best summed up by the two c’s – caution and curiosity.

“Three months of being cooped up in the same four walls have led many people to consider a move, and to reflect on what they want from their home.

“On the front line, we’ve seen a steady stream of pragmatic buyers who made life-changing decisions during lockdown and are now keen to capitalise on the current softening market.

Here are the key charts from today’s Nationwide house price survey:

Here’s our news story on the SSP job cuts:

Introduction: Covid-19 unemployment crisis deepens as SSP cuts jobs

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

The economic cost of Covid-19 is mounting, forcing struggling companies to slash jobs even as governments try to unlock their economies without fuelling the virus’s spread.

In the last few minutes, British travel food group SSP has confirmed it is planning to cut up to 5,000 jobs. That would be over half its workforce, as it implements a reorganisation to address the crisis.

The firm, which runs the Upper Crust and Caffè Ritazza outlets at airports and railway stations, has been hurt badly by the slump in travel since the pandemic started. It has concluded that sales will remain very subdued for months -- with demand for long-haul flights likely to remain very low for month.

In a grim statement to the stock market, SSP says:

Our expectation is that by the autumn only around 20% of units in the UK will have opened. We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation.

If the pace of the recovery continues at the current level, this could lead to up to c. 5,000 roles becoming redundant from within the Head Office and UK Operations.

That slump forced aerospace giant Airbus to announce 15,000 job cuts last night, including 1,700 in the UK.

As chief executive Guillaume Faury put it:

“Airbus is facing the gravest crisis this industry has ever experienced.”

That crisis is also forcing EasyJet to axe thousands of jobs, but it also runs beyond the travel sector. Furniture chain Harveys and shirt maker TM Lewin both fell into administration on Tuesday, costing 800 jobs - with another 1,300 at risk.

The Covid-19 slump has now hit the UK property sector, with some people much more reluctant to risk taking on a new mortgage - or possibly even to risk visiting properties.

Nationwide building society has reported this morning that prices fell by 0.1% in June, the first annual fall since 2012.

On a monthly basis, UK house prices slid by 1.4% compared with May (when they had shrunk by 1.7%).

Robert Gardner, nationwide’s chief economist, said:

“It is unsurprising that annual house price growth has stalled, given the magnitude of the shock to the economy as a result of the pandemic. Economic output fell by an unprecedented 25% over the course of March and April – almost four times more than during the entire financial crisis.

“Housing market activity also slowed sharply as a result of lockdown measures implemented to control the spread of the virus. While latest data from HMRC showed a slight pick-up in residential property transactions from April’s low, in May they were still 50% lower than the same month in 2019.

“Mortgage activity saw an even more dramatic slowdown –there were only 9,300 approvals for house purchase in May, down from 73,700 in February and 86% lower than in May 2019. However, our ability to generate the house price index has not been impacted to date, as sample sizes have remained sufficiently large (and representative) to generate robust results.

More to follow...

The agenda

  • 8.55am BST: German unemployment count for June - expected to rise by 120,000
  • 9.30am BST: UK manufacturing PMI for June - expected to rise to 50.1, showing a little growth
  • 2pm BST: US manufacturing PMI for June - expected to rise to 49.6, showing a small contraction

Updated

 

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