r 22, 2020
Initial unemployment claims for the week of October 17 fell 53 thousand to 787 thousand after having risen 75 thousand in the previous week. After reaching a peak of 6,867 thousand at the end of March, initial claims have been steadily declining. In the past four weeks claims on average have declined 20 thousand per week, That is a gradual but steady decline. That means that people are still losing their jobs, but at a slower rate than in other recent months. Prior to the recession claims were averaging 200-225 thousand. The slower pace of decline in claims in recent weeks is an indication that even though the economy continues to recover, some additional workers are still losing their job each week.
For the past several weeks the claims data for California were being estimated as it tried to catch up in the processing of their initial claims data. During the pause the estimated level of claims for California was held steady at the same level that prevailed prior to the pause. But when the revised data were reported this week the level of claims for the two prior weeks were revised downward significantly and the current week includes a correct level for California.
In any given week two things can happen. First, people lose their jobs (reflected in the initial unemployment claims data) and, second, people are hired. The number of people receiving unemployment insurance benefits is the difference between the two. If this series declines in any given week by, say 1 million, it means that 1 million more workers were hired than were laid off. That continues to be the case.
The number of people receiving unemployment benefits declined 1,024 thousand in the week ending October 10 to 8,373 thousand after having fallen 1,197 in the previous week. So while people are getting laid off, an even larger number of people are being hired. Prior to the recession roughly 1,725 thousand people were receiving benefits so we still have a ways to go but the labor market continues to improve rapidly.
Given the sizable decline in the number of people receiving unemployment benefits means that the insured unemployment rate fell 0.7% in the most recent week to 5.7% after having declined 0.8% in the previous week. Before the shutdown started it was steady at 1.2% so it is still very high. This series reached a peak of 17.1% in the week of May 9 so, thus far, it has been declining quickly — about 0.7% per week and, contrary to the expectation of most economists, thus far it is showing no sign of slowing down.
The decline in the insured unemployment rate tracks closely the drop in the unemployment rate. The drop in this measure in the past several weeks suggests that the unemployment rate for October could fall from 7.9% to 7.1% (our forecast) — or lower. Given what is shown in the chart below it is not entirely possible that the unemployment rate for October — which we will learn about in two weeks — will dip below the 7.0% mark..
For what it is worth, we expect payroll employment to increase 1,000 thousand in October, and the unemployment rate to decline 0.8% from 7.9% to 7.1% but, as noted above, it could be even lower..
Following the 31.4% GDP drop in the second quarter, the $3.0 trillion of stimulus money will provide a dramatic boost to growth in the third quarter. We current expect third quarter GDP growth to rebound by 28.0% with an additional 7.0% gain in Q4. We will get our first look at third quarter GDP growth next Thursday, October 29. As we see it, the economy does not need additional fiscal stimulus which is currently being debated on Capital Hill. It is spending that will needlessly widen the budget deficit and drive up the amount of government debt outstanding. Does anybody care about that any more?
The economy fell into recession in March with a further decline in April. But with the fiscal stimulus money being disbursed the economy turned upwards in May. As a result, the recession that lasted just 2 months — one-quarter of the 8-month duration of the average recession.
Stephen Slifer
NumberNomics
Charleston, SC
Dr. Slifer –
I hope you are correct in your optimistic assumptions, but am skeptical. The restrictions in the US are not as severe as in China, and are not enforced. The rate of increase in confirmed cases in the US (based on the Johns Hopkins Coronavirus Resource Center data) has been running at 40% per day and only in the last three days has any decrease been recorded – to about 25% per day. The curve is bending down only slowly, and it seems unlikely it will be flat by the middle of April. Even when the rate of increase is controlled, if less than half of the population has been infected (and acquired immunity), then a relaxation of restrictions may lead to a resurgence of the infection, requiring even longer quarantine. Lastly, if it goes on for a few months instead of a few weeks, bankrupticies and other business failures, as well as the worldwide collapse in trade, seem likely to impede a robust recovery. I know nothing of economics, but the other factors here seem unlikely to reverse soon.
Hi Frank.
Thanks for sharing your thoughts. Everybody seems skeptical. Most people have responded are in that camp. I seem to be the only relative optimist out there.
Your concerns are all valid. Given that Trump did not declare an emergency until March 13, and many of the governors did not impose stay at home orders until this past week, I suspect it is still a bit too soon to expect some improvement. I am hoping my mid-April time table is not too far off the mark. I keep going back to the China data. They imposed stringent controls towards the end of January, saw hints of improvement by mid-February, and had the thing well under control by mid-March. And, at least thus far, as their economy starts opening up they have not seemed to experience any resurgence of the virus. Not exactly sure why we should be significantly different here, but almost everybody questions my timetable. Who knows? everybody else could certainly be right.
I need this to be a short-term event.
If it goes on a lot longer than I envision, I certainly share your concerns. Businesses, particularly small businesses have contingency plans and lines of credit to hold them over for roughly a month. Longer than that we will have a lot of problems. I think it raises a legitimate question whether the economic fallout from the so-called cure will turn out to be worse than if we had simply let the virus run its course and opted instead for a more targeted approach — isolation and help for the elderly, encourage and provide incentives for manufacturing firms to ramp up production of ventilators, masks, and protective gear for health care workers, and financial assistance for those directly impacted by the virus. We do not need $1,000+ checks for every American
As always, I guess we will see. Stay healthy.
Steve
Steve –
It’s been about 5 months since my previous comment on March 27, and the stock market is back at or exceeding previous highs. Nevertheless, 10% unemployment is still a large number, and at even 0.4% decrease per month (which will probably become less over time), it’s going to take a long time to get back to 5% or below.
Many areas like restaurants, hotels, tourism (particularly international), airline travel, industrial production related to airplanes, and school and college teaching, will probably not get back to normal for more than a year. Are these areas in totality a small enough part of the
economy that they can be offset by the segments doing well (Amazon, Facebook, Google, Apple, bicycles, RV’s, financials), so that the total economy does OK? What
about those folks whose unemployment bonuses are over (assuming nothing further is forthcoming from Washington). The job losses, evictions, unpaid bills
and mortgages, would seem to ensure misery and dislocation among a lot of the
population. Is there enough employment among everyone else to offset this
economically?
It seems amazing that overall things are not worse, given the number of people
affected, but maybe MMT is correct that if you throw enough money at a problem,
it will get better.
Would appreciate your further insights, including your recommendations for no
further supplementation.
HI Frank,
Nice to hear from you. Everybody seems to be talking about the apparent disconnect between the stock market and the economy. I am not sure the two are as far out of sync as they appear.
When people talk about the economy what they are talking about is the 32.9% GDP decline i =n the second quarter. Admittedly, we dug a deep hole. But, as I wrote about this week, some sectors are doing surprisingly well — notably housing and retail sales which are higher now than they were when we sent into the recession. But, as you point out, other sectors of the economy are not doing so well — hotels, restaurants, hotels, air travel, etc. And, as you also point out, the unemployment rate is still 10.2% and I (one of the optimists) peg it at a still relatively high 6.2% at the end of next year.
But the stock market is not looking at where the economy is currently, but where it is going to be a year or more down the road. They see tech stocks that are obviously doing extremely well at the moment. That is important because it is technology that has led is going to lead us further out of this mess. Look at what has happened in the medical industry. We really began to suffer from he virus in March. A vaccine typically takes 10 years to develop. But the talk currently is that several vaccines may be available by yearend. That is less than one year. And now we have blood plasma treatments that are going to made more widely available to help those worst case sufferers. This is technology in action. Then think about Amazon and even Walmart. Amazon hired 175,000 workers and Walmart 100,000 during the recession to cope with the massive amount of on-line purchases from all of us. Once again, technology is helping to lift us out of the recession.
The stimulus money was the primary reason that we are where we are. But that money will eventually get spent. So the economy needs to get a life of its own fairly soon. My forecast assumes that a vaccine will be available by yearend. Once we get a vaccine the stock market will soar. And you and I will feel far more comfortable going out to eat, shop, travel, fly, etc. All of those sectors that are still having a difficult time will do much better. That is what we need to get a sustainable recovery in my view. A vaccine.
For this reason, I do not think that the economy needs more stimulus. It does not look today anything at all like it did when the last stimulus package was adopted in April. The stock market is at a record high level. The unemployment rate, which still high, is quickly heading in the right direction. GDP growth in the 3rd quarter is likely to rebound by 28% following the 32.9% drop in the second quarter. If the economy stumbles at some point down the road, then revisit additional stimulus at that point in time. But right now we are improving rapidly and there is no reason to needlessly run up the size of budget deficits and debt.
I hope this helps.
Best.
Steve
Thanks for your detailed analysis and comments. You have definitely called it
correctly to date, and I hope it continues.