Solid Jobless Claims Report

The jobless claims report was actually really good this week. It was even better than last week which means the trend is improving. This report was from the week of August 1st. That means the economy improved without the coming fiscal stimulus. 

It tells us COVID-19 was the main reason the economy weakened since it is getting as cases are falling. To be clear, the stimulus is still important. It will boost consumer spending growth once it passes.

It's notable that if jobless claims fell without an extension of unemployment benefits, it means lower benefits encouraged more people to work. However, the data never is that clear. Improvement was due to the decline in COVID-19 cases. We have a Yale study which shows people didn’t stay home from work to collect benefits. 

Logic supports that claim because it makes no sense to pass up a job because of uncertain benefits. Some think the government did a poor job of rolling benefits out in March and is always debating when they should end. These benefits are far from reliable. That’s why the savings rate has been so high in the past few months.

Details Of The Weekly Report

Seasonally adjusted initial claims fell from 1.435 million to 1.186 million which destroyed the consensus for 1.442 million. It was even below the lowest estimate which was 1.38 million. Remember, the seasonal adjustment pushed this up slightly. That’s why seasonally adjusted claims rose last week. The actual number this week was even better. 

As you can see from the chart below, non-seasonally adjusted initial claims finally fell below 1 million which is a huge threshold to break. They fell from 1.2 million to 980,000. Obviously, that’s the lowest since the pandemic started. This was the biggest week over week decline since May 30th. That’s a huge deal because the easy fruit has been picked. If claims were to fall this much every week, they’d be back to normal in 3 weeks. This decline was so good that it’s unsustainable. It’s very exciting.

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To make matters even better, PUA claims fell from 830,000 to 656,000. They have been stubbornly high through this pandemic. Continued claims also fell as they were down from 17 million to 16.1 million. They are slightly below where they were 2 weeks prior. 

With this great initial claims report, continued claims will probably fall sharply next week. We are well on our way to a strong August BLS report. We can expect the July labor report to be weak, but the stock market to ignore it. That’s in the past. No one should care about July anymore.

Job Cuts Increase

It's really confusing as to why the consensus calls for 2 million jobs created. That number is almost impossible to be hit. This argument was supported by the weak Challenger Job Cuts report. There were 262,649 job cuts announced in July which was up from 170,219. That’s a 54% monthly increase and a 576% yearly increase. 63,517 of the cuts were because of COVID-19 and 60,831 were because of demand weakness.

Bars, restaurants, hotels, and amusement parks had 109,940 cuts in July which was an 18% increase from June. To be clear, this report wasn’t weak enough to guarantee a terrible BLS reading since there were more cuts in May which had a great reading. 

Since the COVID-19 hotspots were in the South and West, we expected them to have the most cuts. That’s what happened as there were 129,411 cuts in the West and 75,509 cuts in the South.

America Outperforms

At first blush it seems that America has potentially had the worst 2nd wave of COVID-19 cases. However, it has outperformed when it comes to stimulus. As you can see from the chart below, America is the only major developed country to have positive disposable income growth in Q2 compared to Q1. That’s probably why it had one of the lowest declines in GDP. 

Clearly, the start of Q3 hasn’t gone well for America because of the 2nd wave. However, it can make up for this in August and September with another stimulus and a decline in cases.

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COVID-19 Situation Continues To Improve

In a couple weeks, the main research should be on how the economy is rebounding as the restrictions in the hotspots are lifted. COVID-19 is headed in the right direction again. The chart below shows the population-weighted share of states with an increasing level of new cases compared to 14 days ago. 

As you can see, the share is actually lower than the trough in late May/early June. A decline in new cases has been quicker. There also was more room to fall this time compared to April.

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There were 58,611 new cases on Thursday which was down from 68,585 new cases last Thursday. There has been less testing, but the number of cases has fallen more than testing. One issue was the tropical storm. It may not be possible to test 1 million people per day if much fewer people are getting it. 

If people aren’t feeling symptoms, they won’t get tested. We would need to start testing people who don’t have symptoms to get testing up. That might not end up happening if deaths are very low.

There were 1,203 new deaths on Thursday which was down from 1,465 last Thursday. 7 day average of new deaths per day will likely fall below 1,000 next week. Again, the initial decline is going to slow and then it will pick up steam. If we get to a point where there are 30,000 cases per day, deaths per day will be very low.