Jobless claims under pre-pandemic peak for first time

Last week’s initial jobless claims figure was unexpectedly low at 684,000 versus expectations for 730,000 and 781,000 the prior week. While this is just one week’s numbers, it is the first time that claims have been under the pre-pandemic peak since the US economy shut down a year ago. I see it as further evidence of the reverse radical recovery still being intact.

I am going to make this post relatively brief. But I want to remind you of my March 4 post about claims looking at this cycle and comparing it to previous cycles:

the maximum [pre-pandemic] 4-week average figure was 674,250 for the week ended 9 October 1982 up until 21 March 2020 when the average surged to 1,004,250 and later topped out at 5,790,250. That’s an order of magnitude worse than anything we’ve seen in over 50 years.

The absolute pre-pandemic peak in initial claims came a week prior to the 4-week average peak, on the week ending 2 October 1982. We saw 695,000 seasonally-adjusted claims that week.

So we have finally broken into normalcy. The numbers are still extraordinarily high, showing you that a year into this thing, the US economy and US residents are still struggling with the effects of the pandemic. But, let’s take this as good news.

Overall, I would say that, despite the historically high figures and no comments from the National Bureau of Economic Research yet, we can likely conclude that the economy is in an official expansion and has been since the re-opening in May or June.  This is what they say about how they date recessions:

Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economy-wide measures of economic activity. It views real gross domestic product (GDP) as the single best measure of aggregate economic activity. This concept is measured two ways by the U.S. Bureau of Economic Analysis (BEA)—from the product side and from the income side. Because the two measures have strengths and weaknesses and differ by a statistical discrepancy, the committee considers real GDP and real gross domestic income (GDI) on an equal footing. It also considers carefully total payroll employment as measured by the Bureau of Labor Statistics.

My problem in thinking about the economy is that, although payrolls are rising, there is still a big churning in payrolls as evidenced by the still elevated jobless claims figures. And so, while payrolls are increasing overall, there is an unprecedented amount of economic displacement still occurring right now.

For me, this highlights how the term ‘recession’ is not meant to evoke a sense of economic weakness. It is simply a catch-all to measure when the economy is in overall decline. Even after a recovery begins, the economy can be weak for months and years afterward. And given the unprecedented nature of work arrangement changes and the ‘churning’ that results, this is especially true now.

As for markets, despite the dip in volatility with the Vix under twenty, the reflation trade is over in my view. We are now at a crossroads where we are looking for clues about what comes next. I am still trying to figure that one out too. I expect less upward momentum in shares. I expected and got consolidation in bond yields but expect more pressure on bonds. But the biggest variable now is still the virus. I know everyone in markets thought they could move on after the vaccines were manufactured. But there are still many months to go before this pandemic is over.