I am writing this initial part just after 8AM EDT while I await the jobless claims. I told you on Monday I expect a big number = larger than most. And I will update you when the claims come in, as I write. But I want to talk about the second leg down in a W-style recession first.
Employment
Ben Casselman had a good thread on Twitter about what’s happening. He says
“The Census Bureau’s experimental Household Pulse Survey shows another big drop in employment last week. We’re back to where we were in mid-May.”
Here’s the chart.
His conclusion is that “employment appears to be falling just as enhanced unemployment benefits are about to expire, which won’t just hurt recipients — it could lead to more job losses as we lose the spending those $$$ supported.”
That makes sense to me because of the data we have seen about re-opening rollbacks, furloughs and layoffs in recent weeks. What I believe is driving the poor data is an uptick in viral spread. And while I still believe it won’t get to anything but the most localized of lockdowns, it will still cause growth to roll over – and potentially triggering a second recession.
On a related note, Last night I got a text about a rumor circulating that the US National Guard and first responders were about to be dispatched to require a “mandatory quarantine” under the “Stafford Act” within 48-72 hours. My guess is that this rumor is an outgrowth of the paranoia growing because US President Trump has called federal agents into Portland and is going to deploy them in other US cities. because of those deployments, people feel as if Trump is willing to use the military domestically for any number of things.
So, there’s a real siege mentality, a paranoia, setting in in the US from all sides as Trump stokes divisions. And that could be bad for the economy and employment. It certainly adds to the uncertainty from the viral contagion that’s ongoing.
I may be optimistic here. But the numbers I see show the second infection spike attenuating in the worst hit areas like Texas, Florida and Arizona. But deaths will continue to rise. And the second spikes in other localities will continue to rise. Overall, I think the second leg down in the economy will be limited. But, policy errors could exacerbate it. We will know by the September or October time frame.
Jobless claims
I saw Politico quoting Ian Shepherdson from Pantheon Economics, saying he expects 1.4 million jobless claims in a few minutes. Put differently, given a seasonal adjustment factor of 96.8, he is expecting unadjusted claims to fall 150,000 from 1.5 million to 1.35 million. Shepherdson says he’s going with 1.4 million because claims are going up now.
But I told you Monday that the seasonal factors will overwhelm the numbers and we should expect an outsized increase if claims truly do rise. For claims not to rise, unadjusted need to fall 250,000 to 1.25 million, divided by the .968 factor to get to last week’s 1,300,000 number.
I will now wait for the number to come in and finish the post off based on that.
The number was 1,416,000.
My View
The unadjusted number fell to 1.37 million. So, this is actually a relatively good outcome. For me, it reinforces my expectation that the rolling over of the data won’t be aggressively negative unless we see policy errors or some other exogenous shock.
There was some bullish curve flattening in the Treasuries curve after the data came out, which is supportive of equities. So, unless and until we get a policy error or data that is more aggressively bad than this, there’s no reason to expect a huge market reaction. Next week’s seasonal factor falls to 84.1. So, that’s going to be a very big hurdle to overcome. To be continued