Bad Pre-Holiday Economic Data
Early Jobless Claims
Because of the Thanksgiving holiday, jobless claims came out a day early, and they were terrible. This is the 2nd week of bad numbers which signals the labor market is getting worse because of COVID-19. This won’t be a double-dip recession. But December will be a bad month for the economy.
Last week’s seasonally adjusted initial claims were revised up 6,000 to 748,000. Claims in the week of November 21st rose to 778,000 which was above estimates for 730,000 and only 2,000 below the highest estimate.
We couldn’t call this a major problem, but it signals the labor market will get worse before it gets better. The main two questions are the following: 1) how bad will it get? 2) when will it start getting better? One guess is seasonally adjusted initial claims rise above 900,000 this winter.
Secondly, claims will start falling again in March. We could have 3 months of weakness. However, once the vaccines are given out, we can expect a full recovery in the labor market.
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As you can see from the chart above, non-seasonally adjusted initial claims and PUAs were up 7%. That’s the 2nd week straight they rose. There was a 4-week streak late in the summer. We can expect this run to be worse because the COVID-19 crisis is worse and government support is scant.
At least late in the summer, we had $300 in additional pandemic unemployment benefits. Now we have a strong chance of all the pandemic benefits expiring on December 26th.
Specifically, non-seasonally adjusted jobless claims rose from 749,000 to 828,000 which was the highest since October 10th. We had the combination of initial claims and PUAs increase in the worst way as PUAs actually fell. Remember, PUAs are rife with fraud which means an increase is probably not a huge deal.
PUAs fell 8,000 to 312,000. At one point in September, there were more PUAs than regular claims. That is no longer the case which means the combination is more impacted by regular claims now.
Continued Claims Fall Again Of Course
Seasonally adjusted continued claims fell from 6.37 million to 6.071 million in the week of November 14th. That 299,000 decline was the lowest decline since September 12th, but it’s still very high. If continued claims were to fall at this rate for another 10 weeks, they would be back to normal excluding pandemic assistance.
However, they won’t fall at this rate because there is less room to fall, the labor market is worsening, and fewer people are lapping out of benefits. 6 months from December was June which didn’t have nearly as many initial claims as May. Continued claims will likely end the year somewhere between 4.75 million and 5.25 million. They will normalize in Q2 if the vaccines work.
If the pandemic benefits expire on December 26th, as of November 7th, 13.7 million people would lose their benefits. It’s hard to imagine politicians allowing such a huge negative hit to the economy, but there is a lot of dysfunction in Congress.
Plus, some members of Congress believe the economy is recovering well, so more help isn’t needed. One could argue, it’s recovering this well because of the help it’s getting. Without that help, it would be a lot worse. Furthermore, COVID-19 is bending the recovery curve downwards. It makes so much sense to help people for the next 2-3 months before the vaccines fully go out.
Specifically, in the week of November 7th, there were 4.5 million PEUCs and 9.1 million PUAs. There were also 600,000 people on extended benefits. Total people on all benefits programs actually rose from 20.32 million to 20.45 million. That’s an unusual increase that goes along with the thesis that the labor market is worsening.
It’s possible new cases will peak before the end of November, but there will be more deaths and hospitalizations in the first half of December. Economic restrictions aren’t going to immediately go away after cases peak. We might even see them stay until the year ends. Obviously, if COVID-19 abates, the slowdown period from the 2nd half of November through the end of February won’t be as bad which means it will be easier to come out of.
Another Decline In A Consumer Sentiment Metric
University of Michigan consumer sentiment index fell from 81.8 to 76.9 because expectations fell. It’s no surprise they fell given the election’s effect on Republicans’ confidence. The current conditions index rose from 85.9 to 87 and the expectations index fell from 79.2 to 70.5.
As you can see from the chart below, Republican expectations cratered on the premature media announcements Joe Biden won. Democrat expectations barely rose because they are afraid of COVID-19. Most expect Democrat expectations to rise sharply in Q2 if the virus gets contained.
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Pre-Thanksgiving COVID-19 Data
We will find out how much COVID-19 was affected by Thanksgiving in 2 weeks. For now, we look at the data beforehand. The 7-day average of tests is 1.8 million. Also, the 7 day average of cases is 172,000. As you can see from the chart below, the positivity rate is falling and the growth in cases has slowed.
If the trend continues, we could see a peak in cases in 1-2 weeks. There are now 89,954 people in the hospital which is a new record. The 7-day average of deaths is 1,642. The best case scenario is deaths peak in mid-December. It’s likely 35,000 to 55,000 people die in December from the virus.
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Conclusion
Jobless claims are increasing which means the fall/winter slowdown caused by the virus is real. We might see initial claims get to 900,000 this winter. Continued claims should fall at a lesser pace. Pandemic benefits are set to expire on December 26th which will be a disaster for millions of people.
Consumer confidence fell because of the election and the virus. COVID-19 cases are increasing at a lower rate, but hospitalizations keep hitting records. Economic restrictions are here for the rest of the year.
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