881,000 (Newly ‘Adjusted’) Jobless Claims — That’s What ‘Good’ Is In 2020

The legislature is suffering from a particularly acute bout of paralysis, above and beyond the endemic gridlock that defines US politics. The prospects of a “big” stimulus deal coming to fruition between now and the ostensible September 30 “deadline” are dimming by the day.

That’s left millions (upon millions) of Americans and small businesses to suffer from what one can only imagine is acute insomnia, as precarity is now an apt description of the circumstances for a disconcertingly large proportion of the US populace. The Fed is virtually pleading with lawmakers to do something to take the pressure off monetary policy when it comes to supporting the recovery from the COVID crash — to no avail.

Against that backdrop, another 881,000 Americans filed for unemployment benefits last week. That’s actually much “better” (which is an extremely relative term these days) than the 950,000 the market was expecting.

Last week’s total was revised up to 1,011,000. The four-week moving average dropped below 1 million to 991,750.

You should note immediately that these figures may not be comparable to previous weeks. Here’s the government to explain:

Beginning with the Unemployment Insurance (UI) Weekly Claims News Release issued Thursday, September 3, 2020, the methodology used to seasonally adjust the national initial claims and continued claims reflects additive factors as opposed to multiplicative factors. Seasonal adjustment factors can be either multiplicative or additive. A multiplicative seasonal effect is assumed to be proportional to the level of the series. A sudden large increase in the level of the series will be accompanied by a proportionally large seasonal effect. In contrast, an additive seasonal effect is assumed to be unaffected by the level of the series. In times of relative economic stability, the multiplicative option is generally preferred over the additive option. However, in the presence of a large level shift in a time series, multiplicative seasonal adjustment factors can result in systematic over- or under-adjustment of the series; in such cases, additive seasonal adjustment factors are preferred since they tend to more accurately track seasonal fluctuations in the series and have smaller revisions. Prior to September 2020, the seasonally adjusted unemployment insurance claims series used multiplicative seasonal adjustment factors. Starting in September Bureau of Labor Statistics staff, who provide the seasonal adjustment factors, specified these series as additive. In accordance with the usual practice, the seasonal adjustment models and factors will be reviewed at the beginning of each calendar year, when prior years of seasonally adjusted estimates will be subject to revision.

Today’s “beat” (if that’s what it is) is good news at the margins. Prior to this week, we seemed to have settled into a “new normal” where ~1 million initial jobless claims is just another day not at the office (get it?).

While market participants may have developed psychological herd immunity to this truly unfortunate state of affairs, I can promise you that Main Street has not.

As a reminder (which you shouldn’t need) consumer sentiment continues to remain mired in a depressed range, even as equities catapult to ever higher highs. There is no “trickle down”. The “wealth effect” is largely a myth. Especially in a pseudo-depression.

The notion (which has been implicitly adopted by some Republican lawmakers) that record-high stock prices reduce the need for additional stimulus is patently false.

If you’re a fan of the president, note that Donald Trump doesn’t believe it either. He may be against sending money to Democratic states and the post office, but he’s all for spending more money to shore up the economy ahead of the election. If he could unilaterally send out another batch of $1,200 stimulus checks, I promise you he would have done it weeks ago.

In any event, continuing claims in the week ending August 22 were 13,254,000, down pretty sharply from the previous week. Consensus was looking for 14 million there.

Total claimants actually rose by 2,195,835 in the week ending August 15, to 29,224,546.

At the end of the day, there is nothing “normal” about the current economic situation in the US. Hopefully, this “better” read won’t add to the recalcitrance of some lawmakers inside the Beltway. Unfortunately, I suspect it’s going to take a shockingly bad top-tier data point (or another market crash) to prod Congress into action.

One more time: if this stimulus argument gets entangled with the broader government funding discussion, the stage will be set for a real mess. Or at least that’s my read on it, even as some analysts continue to suggest that such an outcome may actually be better as it would “force” a deal.