Another week, another deluge of jobless claims.
Unfortunately, an additional 3.84 million Americans filed for unemployment benefits last week, as the economic fallout from a near-nationwide lockdown tied to coronavirus containment protocols rolls on. The previous week was revised up to 4,442,000.
The latest claims data is worse than feared. Economists were looking for 3.5 million on the headline. Notably, this week’s total is larger than the week of March 21, when things started to spiral in earnest.
The implied jobless rate is around 22%, more than double the worst levels seen during the financial crisis and nearly as high as the Great Depression.
Last week’s total is a stunning number by reference to any historical precedent outside of the current deep recession. But, in keeping with the trend, it does suggest that claims may have peaked late last month.
With some states already reopening businesses and the Paycheck Protection Program topped up, there’s some rationale for cautious optimism.
The six-week total (i.e., capturing most of the lost jobs during the panic) is 30.3 million.
The next chart is familiar to readers. Assuming the recession began in Q1 of 2020 (i.e., taking December’s non-farm payrolls report as the last data point), the US created around 20.5 million jobs over the longest expansion in history which, going by the NBER’s official start date, began in June of 2009.
Not only has America seen the entirety of those gains effectively wiped off the board, but updating the visual with the six-week sum tallied over the course of the ongoing crisis shows a net loss of nearly 10 million.
Again, I would remind readers that is by no means a definitive assessment. And there’s quite a bit of implicit extrapolation, but it helps to put the last six weeks in perspective. It also gives you a window into just how troubling the April jobs report will invariably be.
Here is an updated chart that shows the comparison with the previous record for weekly claims.
Going forward, the assumption is that between the tentative reopening underway in some states and the various government programs aimed at keeping Americans on payrolls, the bleeding will slow, and eventually stop.
The problem, though, is that the nature of this crisis likely means consumption habits have been forever altered.
If society has, in fact, changed, and people interact with each other differently going forward, there may never be a full recovery for the mighty US services sector.
That’s not an effort to make things sound worse than they really are. It’s just an assessment of the prevailing circumstances.
The real issue ultimately is that even if everything opens up next week… it’s not going to be like it was because the threat is still there. How do you confidently eat at a restaurant with a cloth mask on? Who is going to be getting back on planes? Remote work is going to be the norm for an extended period. So ultimately a lot of these jobs are not coming back soon. Given the extremely inefficient check rollout and its limited one time nature you aren’t addressing the debt levels which remain extreme. So in 6-12 months many households will be extremely stressed or collapsing. The mortgage extensions require repayment in full at the end of the period so there is a looming catastrophe for those hardest hit. Without a massive policy action to assist the average citizen this could be less of an L shaped recovery and more of a descending staircase. Especially if the reality of vaccines is that this is ultimately more like the common cold and impossible to develop long term immunity to.
I agree with your description of the realities …. all lot of changes in spending habits are imminent… The only thing that has not changed is the attitudes of the system to the role of equity markets in the entirety of the upcoming New social fabric we will experience..
The system used to levitate this market the last few years is the same system being used to revive it now… FOMO , TINA and Rosy Scenario are the amazing survivors of the Virus….The acceptable levels of Risk management are forever changed it appears and it is almost impossible not to be sucked into the Vortex of these changes …….Watch what Charlie M…. says as it is a window to our New World..
I think the issue there is that we just let the damage of the GFC take hold for those not in the financial sector allowing many to be wrongfully evicted. If we let this damage set in and become a lasting reality while the financial industries skyrocket again there will be a resounding populist backlash that if we are lucky will still be political and if we aren’t will be civil unrest. 30 million people with a lot of free time is not a great recipe for the status quo.
I guess this is the “let them eat stocks” moment.
Don’t tell that to the Bulls or the gamma traders…according to them this is apparently just a temporary blip and we will be back to “normal” in no time at all. As you correctly state, this epidemic will have long-lasting effects. There is no way I buy at these levels if looking to retire in the next few years.
Dunno. Americans not spending would be a first in my 25 years in finance.
As to habit changing – meh. For a while, sure. After that, I don’t think so. Nothing really changed after 9/11, nothing really changed after the GFC. My bet is for nothing to change this time around either.
Now, it’s true that a lot of people might get financially stressed as we get back towards normal. Hence, it’s a question of policy response. Will the fiscal powers that be go all in and “do whatever it takes” or will they pretend to be concerned about deficits and incentives to deny help to the poorer and weaker amongst us?
I remember in March of 2002 when my good buddy, a chef in San Diego, was telling me how all the hotels in the area were laying staff off because tourism had slowed way down. I thought to myself, “gee, I’d have never guessed on 9/11 that people in San Diego would be getting laid off next March. The difference this time is that they are already laid off, no need to wait several months for that to happen…and no reason to think they’re all going to be back at work in September.
The bottom line in this pandemic is cash. People everywhere will need cash flow, and businesses will need cash flow. A pandemic backed stock bubble doesn’t matter a bit to someone with a small business, and as stocks get more and more overvalued, it’s gonna be harder to find speculators willing to spend cash to buy super expensive tulip bulbs. Mainstreet cash is not going to be wasted going forward, for a very long time and Wall Street casino chips will have limited future value.