KEY DATA: Claims: 1.31 million (-99,000); Continuing Claims: 18.06 million (-698,000)
IN A NUTSHELL: “The labor market has been improving, but the impacts from the virus resurgence could slow that progress.”
WHAT IT MEANS: With the virus resurging across the nation, the focus of attention is turning toward determining how much of an impact it is having on the labor market. Today’s unemployment claims report is not likely to contain very much information about that. What it does is provide a baseline to compare to the next few weeks, when the effects of the shutdowns and slowing of the reopening will start to appear. Whether the latest report is representative of that baseline is also in question as the July 4th holiday may have skewed the data somewhat.
So much for the caveats. Last week, the number of people filing new unemployment claims dropped solidly. But as I remind everyone every week, the level is still incredibly high. It is hard to say that 1.3 million newly unemployed people are a good number. It is not. Worse, it is high compared to the progress being made on the continuing claims front. The number of people receiving unemployment checks dropped sharply last week. However, the level was only half that the number that filed for unemployment. It will be hard to sustain the solid declines in the unemployment rate and the strong job gains if that gap continues. Since it takes time to go from claimant to recipient, the continuing claims numbers lag the new claims data, so don’t be surprised if the recent improvement slows.
IMPLICATIONS: Yes, the labor market is indeed getting better, but with states slowing and/or reversing their reopenings, the data could be nothing more than yesterday’s news. I would be surprised if we don’t see new claims start to rise over the next few weeks. More and more firms are warning of impending layoffs and that means many other firms are either ramping up more slowly or simply not filling open positions. We have entered a period of rising uncertainty about the state of the recovery and companies are not stupid: Facing an inability to forecast future demand, the best thing to do is hire cautiously, if at all, or allow payrolls to decline organically. Today’s data were good, but the see-no-evil markets need to look past those numbers and start asking the right question, which is: Where do we go from here? Since the approaches to dealing with the virus are being made without central government guidance, the randomness of the approaches and the political undercurrents in which they are being made raise real concerns about their effectiveness. Given the massive resurgence in the virus, it is hard to conclude otherwise.