{"id":1696,"date":"2020-04-09T11:36:50","date_gmt":"2020-04-09T15:36:50","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1696"},"modified":"2020-04-09T11:36:50","modified_gmt":"2020-04-09T15:36:50","slug":"weekly-jobless-claims-and-early-april-consumer-sentiment","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1696","title":{"rendered":"Weekly Jobless Claims and Early April Consumer Sentiment"},"content":{"rendered":"\n

KEY DATA:<\/strong>  Claims: 6.6 million; Insured (Level): 7.46\nmillion\/ Sentiment: -18.1 points; Current Conditions:  -31.3 points<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cWith 16.8 million new unemployment claims in\njust the past three weeks, the unemployment rate could easily reach 20%.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  The drumbeat of shockingly bad labor market\nnumbers continues.  Another 6.6 million people filed\nfor unemployment insurance last week, bringing the total for just the past\nthree weeks to 16.8 million workers.<\/em><\/strong> \nKeep in mind, not everyone is eligible for unemployment insurance.  However, with CARES Act allowing small\nbusiness owners to file (they made unemployment insurance payments but weren\u2019t\neligible themselves), the number is a better measure of the loss of jobs than\nprevious numbers.  Regardless, what\nwe are seeing is an emptying out of the employment rolls <\/em><\/strong>that\nrepresents the impacts of the shut downs. \nAnd with some states just starting to close business, these numbers should\nremain high for a few more weeks. \nHowever, I do expect them to start trending downward.<\/em><\/strong>  The number of insured is lagging the claims\nnumbers and that is already at a record high. \nSo, expect us to take out the Great Recession unemployment high of 10% and\neven the post-WWII high of 10.8% posted in December 1982, possibly as soon as\nthe April report. <\/em><\/strong><\/p>\n\n\n\n

The consumer confidence numbers are starting to\ncatch up with reality.<\/em><\/strong>  The University of Michigan\u2019s\nearly reading of April Consumer Sentiment fell sharply.  <\/em><\/strong>But it was the Current Conditions\nIndex that crashed and burned.  I had\nnoted in the last commentary about this indicator that households seemed to be\ndelusional.  No longer.  And there\nwas a clear warning in this report:\n\u201cConsumers need to be prepared for a longer and deeper recession rather than\nthe now discredited message that pent-up demand will spark a quick, robust, and\nsustained economic recovery.\u201d  <\/strong><\/em><\/p>\n\n\n\n

Labor and\nEquity Market Implications:<\/strong>  When\nall is said and done, the unemployment rate could exceed 20%.  That depends upon how many workers are\ntransferred from the unemployment insurance rolls to the CARES Act, government\npaid, private sector payrolls.<\/em><\/strong>  Those\nbeing paid by the government but carried by private firms are technically not\nunemployed,<\/em><\/strong> so as I have noted before, the unemployment rate will be an\nartificial measure.  Nice trick.  But the CARES Act also creates a conundrum\nfor low to moderate-income workers.  For\nas long as the extra $600 per week addition to unemployment compensation\npersists, total payments to lower paid workers will likely replace all of what\nthey lost (and maybe even more).  Thus,\nthe incentive for many unemployed is to not accept a job offer to return to\nwork.  That sets up a potential battle\nbetween employers and former employees. \nFor the CARES Act loans to become grants, firms need to rehire\/replace a\nsignificant proportion of their former payrolls.   This will incent firms to pressure workers\nto take job offers, even if those jobs are not in the best interest of the\nworkers.  Welcome to the world of\nunintended consequences.  And even\nif the unemployment rate winds up maxing out \u201conly\u201d in the low to mid-teens, it\nwould still be well above the Great Recession high of 10%.  <\/em><\/strong><\/p>\n\n\n\n

After the back-to-back recessions in the early\n1980s, it took over four years to get within one percentage point of the\nprevious expansion\u2019s low unemployment rate. \nIt took five and a half years after the peak in the unemployment rate\nwas reached during the Great Recession to get back to within a one percentage\npoint of the previous low.<\/em><\/strong>  Since\nthe CARES Act unemployment rate will already include a large number of rehired\nworkers, <\/em><\/strong>we might not see a surge in hirings once the economy is\nreopened.  Thus, it could take five years to\nget within one percentage point of the February 2020 rate.<\/em><\/strong>  That has some significant implications for\nthe equity markets.  Currently, investors seem to\nthink that the massive government and Federal Reserve loan and grant programs\nwill get the economy bouncing back quickly.<\/em><\/strong>  It seems like a V-shaped recovery is getting\nbaked into the cake.  But those programs\nwill start to wear off.  The government\ndoesn\u2019t have an infinite amount of money to keep paying workers that are on\nprivate payrolls.  Those firms will\neventually have to become profitable enough to pay their workers by\nthemselves.  Yes, public welfare is great when you\nare receiving the funds for free and business owners are gratified for the\nlargesse.  But that approach is only a\ncrisis-created way of life.  Eventually,\ncapitalism must be reign and with the unemployment rate so high, spending power\nwill be limited.<\/em><\/strong>  Eventually,\nearnings growth for the second half of this year and for 2021 has to be\nfactored into equity prices. The claims data point to double-digit unemployment\nrates and if we do hit 20%, don\u2019t expect earnings to be great for many\ncompanies for quite some time.  Worse, if\nthe rate remains near 10% for an extended period, the level of demand will not\nbe enough to support many of the smaller businesses that were already living\nhand to mouth before the pandemic.  So\nexpect layoffs to resume during the second half of the year as the government\nfunds get withdrawn.<\/em><\/strong>  The\nalternative is longer and more expensive government subsidies and a massive\nbudget deficit that will lead, ultimately, to crushing spending and tax\nchanges.  If anyone thinks that we can\nspend our way out of this at the level we are spending, without longer-term\nconsequences, they are deluding themselves. <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  Claims: 6.6 million; Insured (Level): 7.46 million\/ Sentiment: -18.1 points; Current Conditions:  -31.3 points IN A NUTSHELL:  \u201cWith 16.8 million new unemployment claims in just the past three weeks, the unemployment rate could easily reach 20%.\u201d WHAT IT MEANS:  The drumbeat of shockingly bad labor market numbers continues.  Another 6.6 million people filed … Continue reading Weekly Jobless Claims and Early April Consumer Sentiment<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1696","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1696","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1696"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1696\/revisions"}],"predecessor-version":[{"id":1697,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1696\/revisions\/1697"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1696"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1696"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1696"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}