{"id":1718,"date":"2020-04-30T11:39:29","date_gmt":"2020-04-30T15:39:29","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1718"},"modified":"2020-04-30T11:39:29","modified_gmt":"2020-04-30T15:39:29","slug":"indicator-weekly-jobless-claims-march-spending-and-income-and-first-quarter-employment-cost-index","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1718","title":{"rendered":"INDICATOR: Weekly Jobless Claims, March Spending and Income and First Quarter Employment Cost Index"},"content":{"rendered":"\n

KEY DATA:<\/strong>  Claims: 3.84 million; 6-Week Total: 30.1\nmillion\/ Consumption: -7.5%; Income: -2%; Inflation: -0.3%; Ex-Food and Energy:\n-0.1%\/ ECI: +0.8%; Wages: +0.9%<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cThe unemployment rate could approach the record\nhigh set during the Great Depression.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  Unemployment claims eased again last week,\nbut if you think that is good news, forgetaboutit. <\/em><\/strong> The decline is slow and the total is likely\nto reach 35 million.<\/em><\/strong>  While some\nparts of the economy are opening slowly, other segments, especially state and\nlocal governments, are starting to downsize. \nSome firms that have held on, now realize the economy will not open all\nat once and they are starting to furlough workers.  And, of course, with states using Cro Magnum\nEra unemployment computer systems, the backlogs remain high.  So, while yes, the pace of new claims is\ncoming down, it is still so extraordinarily high that the total continues to\nrise at an alarming pace.  Understandably,\nwe are looking for good news, but so far, the unemployment data are best\ndescribed as not as horrible.<\/em><\/strong>  <\/p>\n\n\n\n

After solid consumer spending in January and\nFebruary, when the economy started shutting down in mid-March, so did spending.  Demand for durable goods, especially vehicles,\ncollapsed.  <\/em><\/strong>The real problem, though,\nwas that purchases of services, which make up about two-things of all consumer\noutlays, were off by nearly double-digits.<\/em><\/strong>  As for income, that did not drop as much.<\/em><\/strong>  That may have been due to firms giving\nworkers one or two weeks of pay when they furloughed or cut them.  A huge reduction in income is likely to be\nseen in the April data.  <\/p>\n\n\n\n

Employment costs, especially wages, were up solidly\nin the first quarter.<\/em><\/strong> The Employment Cost Index adjusts for changes occupation and industry\ndistributions, making it the best measure of wage and benefit costs.  But the response date was March 12, so we are\ntalking pre-shut down data.  <\/em><\/strong><\/p>\n\n\n\n

IMPLICATIONS:<\/strong>  How high will the unemployment rate go?  As a reference, we can use the insured unemployment\nrate<\/em><\/strong>, which is the percentage of the labor force on unemployment\ninsurance.  As of the week ending April 18th<\/sup>,\nit was 12.4%.  But the insured rate and\nthe measured rate often differ dramatically. \n<\/em><\/strong>It takes time for people to apply, some don\u2019t apply, as they\ndon\u2019t think they are eligible and backlogs can skew the data.  The current insured level is also different\nfrom the past as business owners and gig workers are now eligible when in the\npast many or most were not.  At the same\ntime, as the CARES Act kicks in, workers who would have been on the\nunemployment rolls are now being counted as employed, though they may be\nfunctionally unemployed.  On\nnet, the measured rate will be a multiple of the unemployment rate.  In the past, that has ranged from a low of 1.3\ntimes <\/em><\/strong>(at the end of the oil embargo recession), to 3.4 times <\/em><\/strong>(during\nthe past few years when the unemployment was historically low).  My guess is that it will be something around\n1.5 times, which would put the April rate at about 18.5%.<\/em><\/strong>  Since another five million more people could\nbecome unemployed, the rate is likely to peak near 22%.<\/em><\/strong>  The peak during the Great Depression was\nabout 25%, so it is not completely out of reach.  It is also a record we don\u2019t want to\nbreak.  <\/p>\n\n\n\n

The importance of the peak unemployment rate is that\nit is the point from which we start our recovery.<\/em><\/strong>  Given that the virus, not economic factors,\nwill determine the speed at which the economy can reopen, the higher the peak, the longer\nthe trek down the mountain.<\/em><\/strong>  That\nis especially critical since we are not simply flipping a switch and starting\nback up.<\/em><\/strong>  An unemployment rate above 20%\nimplies that income and demand will remain depressed for an extended period of\ntime. <\/em><\/strong> We could still be around\n10% at the end of the year.  That was the\nhigh rate in the Great Recession and the return to a strong economy took\nyears.  There has been a lot of damage\ndone to the economy and a lot more needs to be done before conditions even\napproach normal.  <\/em><\/strong>That is the\nmessage in today\u2019s unemployment claims report.          <\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  Claims: 3.84 million; 6-Week Total: 30.1 million\/ Consumption: -7.5%; Income: -2%; Inflation: -0.3%; Ex-Food and Energy: -0.1%\/ ECI: +0.8%; Wages: +0.9% IN A NUTSHELL:  \u201cThe unemployment rate could approach the record high set during the Great Depression.\u201d WHAT IT MEANS:  Unemployment claims eased again last week, but if you think that is good … Continue reading INDICATOR: Weekly Jobless Claims, March Spending and Income and First Quarter Employment Cost Index<\/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":[3],"tags":[],"class_list":["post-1718","post","type-post","status-publish","format-standard","hentry","category-economic-indicators"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1718","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=1718"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1718\/revisions"}],"predecessor-version":[{"id":1719,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1718\/revisions\/1719"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1718"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1718"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1718"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}