Jobless Claims Fall
The jobless claims report from the week of August 29th had a few nuances that make looking at the seasonally adjusted headline reading or any other headlines misleading. Seasonally adjusted claims fell from 1.011 million to 881,000 which was below the consensus of 958,000 and the lowest estimate which was 910,000. These estimates made no sense because the main reason claims fell was an adjustment to the way seasonally adjusted claims are calculated.
Everyone who knew this adjustment was coming, knew the number of claims was going to fall sharply. This week’s data isn’t comparable to previous weeks. Previous weeks weren’t adjusted using the new calculation. Non-seasonally adjusted claims rose slightly from 826,000 to 833,000 which isn’t a terrible reading but clearly indicates the seasonal adjustment had an outsized impact on the headline reading.
Because many economists knew the adjustment was coming, they are making sure to paint this as a bad reading. Their negativity is overkill as continued claims fell sharply. As you can see from the chart above, when you include PUAs, non-seasonally adjusted claims were up 11%. That’s because PUAs were up an enormous 152,000 to 760,000. Just like how bearish economists are looking deeper at headline claims, let’s look deeper at PUAs.
California had a 146,000 increase in PUAs. There may have been a data dump here where claims from a few weeks were dumped into one week. It’s highly unlikely this huge spike from one state is a signal the national labor market is getting worse. I bet PUAs either don’t rise much or fall next week.
Furthermore, the all-important continued claims fell sharply in the week of August 22nd. Let’s not paint the labor market recovery as fragile if continued claims are falling steadily. We need to see 2 weeks of rising continued claims before we can say there is a trend change. Labor market recovery is actually going well.
Specifically, seasonally adjusted continued claims fell an enormous 1.238 million to 13.54 million. This is a hugely positive reading. If claims were to fall at this rate for 6 more weeks, they would be 5.826 million which is below the previous recessionary peak.
Non-seasonally adjusted claims also fell. They went from 13.87 million to 13.1 million. This is the 5th straight weekly decline. The theme for the fall is about to be “better than the worst of the financial crisis.” If Abbott’s testing works, we can quickly see a solid labor market.
Challenger Job Cuts Fall
August Challenger job-cut report showed improvement just like continued claims. We are about to get a solid BLS reading where the unemployment rate falls to the high single digits. Labor market momentum looks good despite the decline in unemployment benefits. There were 115,762 job cut announcements in August which was down from 262,649 as you can see from the chart below.
Don’t fear the headline that says this is the most job cuts for a year on record. That’s because of the bad results earlier in the year. Don’t fear the 116% yearly increase in August because this is a big improvement from July. Big states had the most layoffs. California had 355,661 cuts this year. New York and Florida had 215,251 and 183,532 cuts.
New York leaders are going too slowly with rolling back restrictions on economic activity because the state dealt with the most deaths. That’s a mistake because its positive rate has been low for months. NY state should be acting normally now that the curve has gone deeply negative.
It’s no surprise the entertainment and leisure category had the most cuts this year as there were 799,051. 1.083 million cuts were due to COVID-19 in 2020. There were 160,411 job hires announced in August which is up from 24,937 last year, but down from 246,507 in July. This is the newest hires in a month since at least 2015.
Consumer Growth Flattening?
We’ve had a few different data points on consumer spending. For example, we saw great improvement in Redbook same store sales growth. That makes the August retail sales report interesting. As you can see from the chart below, yearly growth in Chase card spending has been stable since mid-June.
That means the decline in fiscal stimulus wasn’t the catalyst for the lack of a growth increase. The best way to get spending higher is to eliminate COVID-19. Even if people had income and jobs, they wouldn’t be able to spend it on certain restricted activities. When all restrictions are eliminated, spending will get back near-normal levels.
Solid Services ISM PMI
August services ISM PMI fell from 58.1 to 56.9 which slightly missed the consensus which was 57. Like the manufacturing report, this was sandbagged by inventories. Inventories index fell 6.2 to 45.8. However, the new orders index cratered 10.9 points to 56.8. Business activity was down 4.8 to 62.4. The good news is the employment index rose 5.8 points to 47.9 which means employment fell at a much slower clip.
After the last report, more people needed to be hired to deal with the increased activity. It’s interesting that the employment reading is still below 50 since there will probably be over 1 million jobs added in August. Just like the manufacturing report, the prices index increased. It was up 6.6 points to 64.2. Is inflation coming?
Fed wants inflation, but the market doesn’t. It would need to sell tech stocks hard if inflation came in earnest. Only 4 commodities were down in price, while the rest were up.
This report is consistent with 2.8% GDP growth. 13 industries had an increase in business activity, while only 3 had a decrease. A retail trade firm stated, “The coronavirus continues to be a challenge for the business as we pivot and adapt to these new conditions. Sales have been affected in the retail space with less foot traffic in our brick-and-mortar stores, while e-commerce sales have increased significantly. We are starting to see sales level out in this new environment from the pandemic.” This is consistent with Chase card spending growth.
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