Employment has plunged to a deeper trough in 2020 than in previous recessions, as this week’s chart shows. But even if employment can sustainably increase from here, predicting the path and speed of recovery to pre-recession levels is very difficult.

Based on data since 1940, it takes an average of 29 months from the start of a recession for employment to recover fully; but there appears to be some relationship between the magnitude of the impact on employment and the time to recovery, particularly over the past 30 years. In other words, the deeper the trough in employment, the longer it takes to recover.

Since 1990, each successive recession has had deeper employment troughs, with the current crisis the deepest yet. During the Global Financial Crisis, employment took 19 months to bottom, and a further 55 months to return to pre-recession levels. Given the extent of the collapse in employment from Covid-19, the recovery in jobs may be more of a slow grind than a sharp rebound.

Low employment tends to indicate weak consumer demand, and if the jobs recovery is slow there could be many businesses under pressure for a prolonged period of time. In such an uncertain environment, companies with the most sustainable financial structures are best placed to perform. Businesses with conservative balance sheets and reliable cash flows can weather these headwinds better and take market share from struggling competitors. Companies also exposed to global markets that are further along the path to recovery such as China can benefit from geographically diversified revenue streams.

Toby Gibb

Toby Gibb

Head of Investment Directing, Equities

Mark J Hamilton

Mark J Hamilton

Senior Graphic Designer