Euphoria Now. But Three Fiscal Cliffs Loom Large
Score one for those who suggested risk assets were poised to rebound more quickly than most market participants thought possible considering the myriad calamitous outcomes triggered by coronavirus lockdowns across global economies.
It's somewhat odd to observe the reactions from some commentators on social media and financial television. It's one thing to suggest that equities are disconnected from economic reality (although that would hardly be a new development) and/or to posit another swoon
Existing home sales dropped 17.8% month to month in April and the supply of homes fell 19.7% which pushed prices to a record high. This may partially explain the rise in new home sales.
“For one, the Federal Pandemic Unemployment Compensation that adds an extra $600/week to regular unemployment benefit payments is set to expire on July 31”,
The Federal Pandemic Unemployment Compensation does not add an extra $600/week to regular unemployment benefits. “In general, PUA provides up to 39 weeks of unemployment benefits to individuals not eligible for regular unemployment compensation or extended benefits, including those who have exhausted all rights to such benefits. “
Yes it does.
From the Department of Labor:
— “My regular unemployment compensation benefits do not provide adequate support given the unprecedented economic challenges caused by the COVID-19 outbreak. Can I expect to receive additional relief?”
***Yes, depending on how your state chooses to implement the CARES Act. The new law creates the Federal Pandemic Unemployment Compensation program (FPUC), which provides an additional $600 per week to individuals who are collecting regular UC (including Unemployment Compensation for Federal Employees (UCFE) and Unemployment Compensation for Ex-Servicemembers (UCX), PEUC, PUA, Extended Benefits (EB), Short Time Compensation (STC), Trade Readjustment Allowances (TRA), Disaster Unemployment Assistance (DUA), and payments under the Self Employment Assistance (SEA) program). This benefit is available for weeks of unemployment beginning after the date on which your state entered into an agreement with the U.S. Department of Labor and ending with weeks of unemployment ending on or before July 31, 2020.
Here: https://www.dol.gov/coronavirus/unemployment-insurance
Also here, Goldman does all the math on this: https://heisenbergreport.com/2020/04/30/in-simulated-economy-3-4-of-laid-off-workers-get-benefits-exceeding-their-former-wage/
I imagine that there weren’t many homes sold to families that lost jobs and are wondering how they will live if his pandemic drags on into the winter. Also the supply of new homes would shrink fairly quickly with a complete shutdown of the construction labor which is just now coming back to work. I suspect that homes came on the market at distressed prices and were grabbed by people who still have income. If there’s a second deadlier wave this fall-winter season it will be interesting to see whether there will be another rise in sales.
I would also like to address what I think will be a bigger drag on the economy. Banks pulling back credit offerings. I have been getting 0% balance transfer offers since 2008 with no break. In April I noticed that Chase was the first bank to pull all balance transfer offers. The next one was Citi. This past week BofA still offers balance transfers but at 18%. To me this is credit tightening. I would not be surprised to see if credit limits start to get lowered.
Another drag on the economy that isn’t being discussed is when my company announced its layoffs in March the people who remained with the company got a 20% pay cut and all yearly bonus’s were canceled.
I got the same 20% pay cut on unemployment.