Bank of Canada holds rate at 0.25 percent - Reuters

OTTAWA, June 3 (Reuters) - The Bank of Canada held its key overnight interest rate steady as expected on Wednesday and said that data shows the impact of the COVID-19 pandemic on the global economy appears to have peaked, though uncertainty remains.

The central bank held its rate at 0.25% in a decision made on the same day new governor Tiff Macklem took helm.

Canadian labor productivity grows by record 3.4% in Q1 - Reuters

By Kelsey Johnson

OTTAWA, June 3 (Reuters) - Canadian labor productivity grew by a record 3.4% in the first quarter as hours worked fell more sharply than business output because of lockdowns and temporary closures caused by the coronavirus pandemic, Statistics Canada said on Wednesday.

Analysts in a Reuters survey had forecast a gain of 1.2% in the first quarter. The 3.4% gain in the first quarter followed a 0.1% decline in the fourth quarter and is the largest quarterly increase ever recorded, Statscan said.

"The many closures imposed by governments to contain the COVID-19 virus led to record employment declines, compounded by reductions in hours worked per job," Statscan said, referring to the respiratory disease caused by the novel coronavirus.

"As business output did not decline in the same proportion as hours worked, this led to an unprecedented increase in labor productivity," it noted.

Since March, officials across Canada shuttered most non-essential businesses and urged people to stay at home to contain the spread of the coronavirus. However, in recent weeks, most of Canada's 10 provinces have begun to reopen their economies gradually.

Statscan said 171 million hours of work were lost in March, while 27 million hours of overtime were worked. The net effect, it said, was a loss of 144 million hours.

The accommodation and food services sector lost the most hours in March, the agency said, with a shortfall of 23.3 million hours. Other affected sectors included the construction industry (-21.5 million), manufacturing (-17.4 million) and retail trade (-12.3 million).

U.S. labor market appears to stabilize as private payrolls fall less than expected - Reuters News

Private payrolls drop by 2.76 million in May

Job losses cross all sectors; but layoffs abating

By Lucia Mutikani

WASHINGTON, June 3 (Reuters) - U.S. private payrolls fell less than expected in May, suggesting layoffs were abating as businesses reopen, though the overall economy's recovery from the COVID-19 pandemic will be slow.

The ADP National Employment Report on Wednesday showed private employers laid off another 2.76 million workers last month after a record 19.557 million in April. Economists polled by Reuters had forecast private payrolls dropping by 9 million in May.

A staggering 25 million private jobs were lost over the past three months. The ADP report is jointly developed with Moody's Analytics.

"The COVID-19 recession is over, barring a second wave of infections or policy error," Mark Zandi, Moody's Analytics chief economist told reporters. "But recovery will be a slog until there is a vaccine."

Zandi said there was no evidence yet the government's Paycheck Protection Program (PPP) was helping the labor market. The PPP, part of a historic fiscal package worth nearly $3 trillion, offers businesses loans that can be partially forgiven if they are used for employee pay.

Stocks on Wall Street opened higher as investors remained optimistic about an economic rebound despite growing social unrest. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.

Though the worst of job losses is probably behind, economists estimate that roughly one in four workers who were laid off or furloughed during the near shutdown of the country in mid-March to control the spread of COVID-19 were unlikely to be rehired. Many bankruptcies are anticipated.

The ADP report was released ahead of the government's more comprehensive employment report for May scheduled for release on Friday. Though it has a poor record predicting the private payrolls component of the government's employment report because of methodology differences, it mirror other labor market indicators in suggesting that layoffs are ebbing.

"The ADP report isn't always a reliable predictor of the government data, but it suggests that the pace of job loss moderated noticeably between April and May, even though it remained substantial relative to pre-COVID-19 norms," said Daniel Silver, an economist at JPMorgan in New York.

"This is a message broadly consistent with some other related signals, and the labor market likely has benefited from the easing of restrictions on activity in many places."

According to a Reuters survey of economists, nonfarm payrolls probably declined by 8 million last month after plummeting by a record 20.537 million in April.

The unemployment rate is forecast rocketing to 19.8%, a post-World War Two high, from 14.7% in April.

Recessions in the United States are called by the National Bureau of Economic Research, which does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries. Instead, the NBER looks for a drop in economic activity, spread across the economy and lasting more than a few months. Economists believe the economy slipped into recession in March.

The ADP report showed job losses across all sectors in May, though within the service-providing sector, administrative services, which include temporary help, and educational services showed employment gains.

U.S. factory orders tumble in April - Reuters News

WASHINGTON, June 3 (Reuters) - New orders for U.S.-made goods plunged in April, suggesting business spending remained depressed early in the second quarter amid the COVID-19 pandemic.

The Commerce Department said on Wednesday factory orders dropped 13.0%. Data for March was revised to show orders falling 11.0% instead of declining 10.3% as previously reported. Economists polled by Reuters had forecast factory orders diving 14% in April.

U.S. services sector off 11-year trough; still contracting - Reuters News

WASHINGTON, June 3 (Reuters) - U.S. services industry activity pushed off an 11-year low in May, but businesses appeared in no rush to rehire workers as they reopen, supporting views the economy could take years to recover from the devastation caused by the COVID-19 crisis.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing activity index rose to a reading of 45.4 last month from 41.8 in April, which was the lowest since March 2009 and first contraction since December 2009.

A reading below 50 indicates contraction in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index increasing to a reading of 44.0 in May.

The report came on the heels of the ISM's manufacturing survey on Monday showing factory activity easing off an 11-year low in May. Sentiment surveys have suggested the slump in economic activity triggered by COVID-19 has bottomed.

The economy contracted at a 5% annualized rate in the first quarter, the worst performance since the 2007-09 recession. Gross domestic product is expected to decline at a rate as sharp as 40% in the second quarter, which would the biggest contraction in output since the Great Depression of the 1930s.

The ISM survey's measure of new orders for the services industry increased to a reading of 41.9 in May from 32.9 in April, which was the weakest since the series started in 1997. The survey's index of services industry employment edged up to 31.8 last month from 30.0 in April, which was the lowest since 1997.

That points to the distress in the labor market, which is expected to be underscored by the government's closely watched employment report for May, scheduled to be released on Friday.

According to a Reuters survey of economists, nonfarm payrolls likely dropped by 8 million jobs last month after a historic 20.537 million plunge in April. The unemployment rate is forecast rocketing to 19.7%, a post-World War Two high, from 14.7% in April.

China's services sector bounces back into growth, job losses continue- Caixin PMI - Reuters News

BEIJING, June 3 (Reuters) - China's services sector returned to growth last month for the first time since January as the economy recovers from strict coronavirus-induced containment measures, although employment and overseas demand remained weak, a private survey showed.

The Caixin/Markit services Purchasing Managers' Index (PMI) rose to 55.0 in May from 44.4 in April, hitting the highest level since late 2010. The 50-mark separates growth from contraction on a monthly basis.

The return to expansion for China's services sector, an important generator of jobs which accounts for about 60% of the economy, was driven by a sharp rise in domestic new business though export orders fell for the fourth month in a row.

Gauges for employment also continued to contract, although at a slower pace.

"Employment in the services sector remained worrisome," said Wang Zhe, senior economist at Caixin Insight Group.

Avoiding mass unemployment is a top government priority, with a target to create over 9 million urban jobs this year.

The economy shrank 6.8% in the first quarter from a year earlier, the first contraction since quarterly records began, and analysts believe it will be months before broader activity returns to pre-crisis levels.

Highlighting the uncertain outlook, the government said in late May it was not setting an annual growth target, for the first time since 2002.

"Demand for services recovered more strongly than that for manufacturing, which was more constrained by sluggish exports amid the ongoing impact of the pandemic's spread outside China," said Wang.

Caixin's manufacturing PMI also showed a return to growth in May but at a slower pace than the services sector, hampered by weak global demand. (Full Story)

Prices charged by service providers were cut for the sixth straight month in May, while input prices dipped slightly.

The findings from the private sector survey, which focuses more on small, export-oriented companies, back an official survey on Sunday which showed momentum in the services and construction sectors quickening. (Full Story)

Caixin's composite manufacturing and services PMI, also released on Wednesday, picked up to 54.5 in May from 47.6 in April.

"In general, the improvement in supply and demand was still not able to fully offset the fallout from the pandemic, and more time is needed for the economy to get back to normal," said Wang.

Beijing has boosted fiscal spending to bolster the economy, which some analysts say is equal to around 5% of China's gross domestic product (GDP). It has also stepped up monetary support, including lowering some of its key interest rates to reduce borrowing costs for companies.

European business slump eased in May, long road to recovery - Reuters News

By Jonathan Cable

LONDON, June 3 (Reuters) - Euro zone businesses suffered another devastating contraction in activity in May and while there are signs the worst is over, it could be months before there is a return to growth, a survey showed on Wednesday.

Governments across the 19 countries that use the euro have gradually started to lift tough lockdown measures imposed to contain the spread of the novel coronavirus which has infected nearly 6.4 million people and killed over 379,000. (Full Story)

But with citizens -- many of whom are facing threats to their incomes as well as their health -- encouraged to stay at home, and swathes of businesses still shuttered, IHS Markit's May Final Composite Purchasing Managers' Index (PMI) painted a gloomy picture.

Although the headline index jumped to 31.9 from April's 13.6 -- by far the lowest reading since the survey began in mid-1998 -- it was a long way from the 50 mark separating growth from contraction. The flash estimate was 30.5.

"The final Composite PMIs add to the evidence that economic activity picked up in May, but it remains well below normal," said Jack Allen-Reynolds at Capital Economics.

World shares nevertheless hit new three-month highs on Wednesday and the dollar fell for the sixth day running as hopes for more monetary stimulus and easing of lockdowns gave the market confidence, despite the civil unrest in the United States and the continuing impact of the pandemic. MKTS/GLOB

The European Central Bank will ramp up its bond-buying again through its Pandemic Emergency Purchase Programme on Thursday, a Reuters poll predicted last month. ECILT/EU

"Our central case is that the ECB will announce a 500 billion euro increase in the size of its PEPP to 1.25 trillion euros, with the risks skewed toward a larger increase to 1.5 trillion euros," said Luigi Speranza at BNP Paribas.

Last month's Reuters poll predicted the bloc's economy would contract 11.3% this quarter and unemployment would be around 10% each quarter for the rest of this year.

An index in the PMI covering employment showed firms were cutting jobs at a near-record pace, registering 37.8 compared to April's survey low of 33.4.

Even though restaurants, hotels, fitness studios and some entertainment venues have been allowed to reopen under restrictions in Germany, economists say a return to pre-crisis levels of business will be slow and job losses are mounting.

Germany's unemployment rate jumped to 6.3% last month and the labour market remains under immense pressure due to the coronavirus pandemic, official data showed. (Full Story)

Activity in the German services sector declined at a slower pace after a record contraction the previous month as restrictions to contain the coronavirus in Europe's largest economy were lifted, earlier data showed.

It was a similar story in France, where service sector activity improved more than initially thought as the country began emerging from its lockdown, although it remained at depressed levels.

Britain, outside the currency union, remained in a severe economic downturn although the pace of the slump moderated from April's crash as some companies benefited from the easing of lockdowns around the world. GB/PMIS

A headline PMI for the euro zone's dominant service industry recovered to 30.5 from April's record low of 12.0 but held firmly below the breakeven mark. The flash reading was 28.7.

Demand fell again, and backlogs of work were run down rapidly, yet services firms were far less pessimistic about the outlook for the next 12 months. Their business expectations index jumped to 47.6 from 34.3.

Euro zone producer prices fall more than expected, unemployment edges up - Reuters News

BRUSSELS, June 3 (Reuters) - Euro zone producer prices fell more than expected in April as the economy slowed to a crawl in the second month of containment measures against the coronavirus pandemic, but unemployment rose only slightly, defying more pessimistic forecasts, data showed.

The European Union's statistics office Eurostat said prices at factory gates in the 19 euro countries fell 2.0% month-on-month in April for a 4.5% year-on-year decline. Economists polled by Reuters had expected a 1.8% monthly and a 4.0% annual fall.

The decrease was mainly a result of a plunge in energy prices, which tumbled 7.5% month-on-month for a 16.5% year-on-year fall. Without this highly volatile component, producer prices eased only 0.3% both on a monthly and a yearly basis.

Producer prices are a key factor shaping consumer inflation, which the European Central Bank wants to keep below but close to 2% over the medium term, as changes in prices at factory gates largely translate into the final cost for consumers.

Also important for inflation and therefore ECB monetary policy is the unemployment rate, which shows trends in consumer demand and therefore rising or falling inflationary pressure.

Eurostat said the number of people that lost their jobs in the euro zone in April was 211,000, bringing the number of the unemployed to 11.919 million or 7.3% of the workforce, up from 7.1% in March.

Economists polled by Reuters had expected a jump to 8.2%, but their forecast was based on previous Eurostat data for March, which the statistics office now revised to 7.1% from the previously reported 7.4%.

Coronavirus pushes up German unemployment, short-time work - Reuters News

Unemployment rate jumps to 6.3% in May

Firms put millions on reduced hours

By Michael Nienaber

BERLIN, June 3 (Reuters) - The coronavirus pandemic further hit Germany's labour market in May as companies continued to slash thousands of jobs and put millions of employees on reduced working hours, data showed on Wednesday.

The bleak figures, published by the Labour Office, came as Chancellor Angela Merkel's ruling coalition wrestled over the final details of a stimulus package to help firms and employees in Europe's largest economy recover quickly from the crisis.

The number of people out of work in May rose by 238,000 to 2.875 million in seasonally adjusted terms, the data showed. A Reuters poll had predicted a rise of 200,000.

The unemployment rate jumped to 6.3% from 5.8% in April.

"The labour market remains under immense pressure due to the coronavirus pandemic," Labour Office head Detlef Scheele said. But he added that unemployment did not rise as much as in April.

Companies logged requests to put 1.06 million people on reduced working hours under the government's Kurzarbeit short-time working scheme from May 1 to May 27, the office said.

That was in addition to requests for 10.66 million people made in March and April combined, the labour office said, adding that this did not, however, mean that all of those people would actually end up on the scheme.

"Short-time work has clearly exceeded the level of the 2009 crisis," Scheele said. Around 1.5 million people were on the programme back then.

Short-time work is a form of state aid that allows employers to switch employees to shorter working hours during an economic downturn to keep them on the payroll.

A poll by the Ifo economic institute published on Tuesday showed the number of workers in Germany on reduced hours had risen to 7.3 million as the pandemic affects most sectors.

Germany's services sector activity improves in May, outlook still bleak -PMI - Reuters News

BERLIN, June 3 (Reuters) - Activity in Germany's services sector declined at a slower pace in May after a record contraction the previous month as restrictions to contain the coronavirus were lifted, a survey showed on Wednesday.

IHS Markit's final services Purchasing Managers' Index (PMI) rose to 32.6 from 16.2 in April, higher than a flash reading of 31.4. The composite PMI index, which covers both the services and manufacturing sectors, rose to 32.3 from 17.4 in April. That was higher than a flash figure of 31.4.

The slower decline in activity did not stop companies from remaining downbeat about the outlook, as new business fell sharply in May, albeit at a slower pace than in the previous month.

"The data show that there is still considerable slack in the economy, and point to the real possibility of a double-digit contraction in the second quarter," said Phil Smith, principal economist at IHS Markit.

"As such, disinflationary forces still are looming large over the private sector economy, with fierce competition among businesses driving down prices charged for goods and services. Lower costs have so far helped facilitate discounting."

The travel, restaurant and entertainment sectors have been hit hard by lockdown measures that were introduced in March and which lasted well into April.

Even though restaurants, hotels, fitness studios and some entertainment venues have been allowed to reopen under restrictions, economists say a return to pre-crisis levels of business will be slow.

"There was more bad news for the German labour market in May as job losses continued to mount," said Smith. "Staff cuts were initially centred on services at the start of lockdown, but here the rate of decline has eased slightly and now been overtaken by manufacturing."

The government expects the economy to shrink by 6.3% this year, the deepest recession since World War Two, even though an unprecedented rescue package is cushioning the impact of the pandemic.

UK economy still shrinking but pace of decline eases -PMI - Reuters News

LONDON, June 3 (Reuters) - Britain's economy remained in a severe downturn in May although the pace of the slump moderated from April's crash and some companies benefited from the easing of coronavirus lockdowns around the world, a survey showed on Wednesday.

The IHS Markit Purchasing Managers' Index (PMI) combining Britain's huge services sector and manufacturing rose to 30.0 from 13.8 in April, up from a preliminary May reading of 28.9.

The index for services alone was also slightly higher than the preliminary figure but at 29.0 it was the second-weakest on record after April's crash to 13.4.

Companies lost orders as clients slashed spending.

"Consumer demand also remained very subdued, with large areas of the service economy still in the planning stage of restarting business operations," Tim Moore, economics director at IHS Markit, said.

Expectations rose modestly for a second month from March's low. But businesses dealing face-to-face with customers were extremely concerned that social distancing measures would hold them back and push up costs.

On the positive side, some companies saw new orders from the Asia-Pacific region, where the recovery is more advanced, and from new online sales efforts.

But export orders continued to fall and some services firms said they were not taking work from abroad due to severe restrictions on travel.

Britain's services PMI does not include retailers, who have been hardest hit by store closures since the March 23 lockdown, or many of the self-employed.