'The worst is clearly behind us,' Morgan Stanley chief James Gorman says of the US economy

ReutersJames P. Gorman, chairman & CEO of Morgan Stanley.
  • Morgan Stanley chief executive James Gorman said at the bank’s annual conference on Tuesday that the “worst is clearly behind us” for the US labour market and economy.
  • Gorman signalled that recent surprising jobs data is a good sign. The US added 2.5 million jobs in May, Bureau of Labour Statistics data showed last week.
  • He also laid out a case for banks to continue paying dividends since payouts are a source of income for many households, and not just for banks.
  • Dividends are “sources of 3-4% yield for a lot of individuals out there who need that money and frankly particularly in this time,” Gorman said.
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Morgan Stanley’s CEO James Gorman said the worst economic consequences of the coronavirus pandemic have passed for the US, and said that recent months have given him a lesson in how fast things can change.

“It’s a bit of a mixed bag,” he told the bank’s clients at its annual financial conference held virtually on Tuesday. “But I think the worst – the worst is clearly behind us.”

Last week, the Bureau of Labour Statistics’ Non-Farm Payrolls data showed that 2.5 million workers got new jobs in May defying expectations of 7.5 million job losses. That brought a stop to a continuous 11-week run which brought total job losses in the US to over 43 million.

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Gorman pointed out that the surprising jobs number suggests that the market can have confidence that the economy will improve, however, for broader economic growth and unemployment, he said “we want to be sure that we don’t have some sort of W in the next several months.”

In a W-shaped recovery, an economy briefly recovers from a recession but immediately turns back down into another period of recession. This form of recovery can be painful for investors aas they might get deluded into getting back into the markets too early.

During the meeting Gorman also addressed calls for US corporations to suspend payments to shareholders in the form of dividends during the crisis.

He said all the big US banks should continue to pay dividends as they constitute a source of income for many shareholders, not just the banks themselves.

Dividends are “sources of 3-4% yield for a lot of individuals out there who need that money and frankly particularly in this time,” he said.

European banks have been instructed to halt 2020 dividend payments to protect themselves in a situation where they may need extra capital. US banks have also come under increased pressure to enforce similar restrictions.

Last month, the International Monetary Fund warned that banks will struggle to protect their profits for the next five years as the pandemic continues to weigh on loan losses and interest rates are kept at historic lows.

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