Labor Market Gets Back To Improving
Fantastic Jobless Claims
Based on the recent jobless claims reports, we were all expecting another weak reading. Instead, we got a strong downward revision and a decline this past week. California came back to the fold after a three week hiatus. The first week they accepted claims, there was probably a huge backlog to deal with. Now that’s over and we can see the numbers. Regular California claims were down 17,000 to 159,000. That’s 67,000 lower than 226,000 when the data was put on hold.
Specifically, last week’s seasonally adjusted claims were revised down from 898,000 to 843,000. Furthermore, in the week of October 17, claims fell to 787,000, which was below estimates for 865,000. A recent increase in claims had been the lynchpin of the negative economic argument.
Without that, we have an okay economy that’s improving at a slower rate, rather than actually getting worse. This improvement in claims data supports the recent spike in the 10 and 30 year yields.
On a non-seasonally adjusted basis, claims fell from 830,000 to 757,000, which isn’t the lowest of the expansion. The lowest was two weeks ago at 731,000. It’s fair to say the labor market is improving at a lower rate, but that was expected. It’s amazing that the labor market is doing this well with COVID-19 ravaging the Midwest.
If we get better treatments to lower the death rate, which would allow the economy to reopen, and if we get a stimulus, initial claims could easily fall below 500,000 in Q1. As you can see from the chart below, there was a 6% decline in unadjusted claims & PUAs this week; that followed a 5% increase. PUAs were up 8,000 to 345,000. That was because Florida had a 22,000 spike.
The Labor Market Really Is Improving
Continued claims fell from 9.397 million to 8.373 million. Claims are falling at such a quick clip that within about two to three weeks they should fall below the peak after the last recession. A problem, however, is that permanent unemployment is spiking. Without the economy fully reopening, we will be faced with a class of disillusioned former workers.
They are either going to be stuck unemployed until their industries come back, or they need to find new industries to work in. Surely, the hospitality industry will come back; we just don’t know when it will.
Remember, continued claims are falling rapidly mostly because people’s benefits are expiring. Most of the people who lost their jobs this year did so from March to May. That also happens to be the entire length of the recession. We can’t say the economy is improving if PEUCs are rising faster than continued claims are falling.
However, that didn’t happen two weeks ago, which is great news. In the week of October 3, there were 1.22 million fewer continued claims. There were 510,000 more PEUCs and 90,000 more people on extended benefits. As you can see from the chart below, the combination has been falling. The labor market is improving slowly.
The Housing Market Is Strong
As a surprise to no one, the latest housing market data was positive again. Existing home sales in September were 6.54 million, which was up from 5.98 million. That beat the consensus of 6.2 million, as well as the highest estimate which was 6.4 million. That’s 9.4% monthly growth and 20.9% yearly growth.
As you can see from the chart below, existing home sales are close to the record high in the housing bubble. This explains why home prices are increasing so quickly. Supply is tight and demand is very high.
Stimulus & Remdesivir
Headlines on the stimulus keep flipping back and forth. This would normally be a contentious debate. It has turned into political theater because people are voting now and the election is in less than two weeks. There is likely less than a 10% chance anything passes before the election.
The good news for value stocks and those who are short the long bond is that President Trump promised a big stimulus and it will likely go through if the Republicans keep the Senate and win the House. Also, Bernie Sanders promised a very big stimulus if the Democrats happen to win the Senate.
That’s why the long bond yield is rising. There is a 15% chance the Democrats win 7 or more seats. it appears that both sides want some sort of stimulus. Even McConnell is pushing a $500 billion plan.
The FDA approved the antiviral drug Remdesivir for treatment of COVID-19. This isn’t a silver bullet, but it can help. There is some controversy over the drug which is administered in the hospital, as the World Health Organization said it had little or no effect on death rates.This drug improves market sentiment, though. People see a potential slew of FDA approvals within the next six months now that the first drug was approved.
Cases In Wisconsin Fall Again
The situation on COVID-19 seems to be continuing to get worse on a national level, but Wisconsin saw another decline in cases, which could mean we are about two weeks away from a peak in national cases in this third wave. We are probably about one month away from a peak in hospitalizations and deaths have barely started increasing, meaning they are far from a peak.
Specifically, there were 4,591 cases in Wisconsin on October 20; 4,205 on October 21; and 3,413 on the 22. We still wouldn’t call this a peak, as many were fooled by a modest decline a couple weeks ago. Let’s see if the decline continues in the next week before we draw conclusions.
On a national level, the results were terrible. There were 73,103 new cases, which is near a record high. There are now 41,010 people in the hospital. Remember, the first wave had more people hospitalized than is shown because a few states like Florida took months to start publishing that data. Therefore, if hospitalizations peak at about 50,000, that would make for 2 lower peaks. 1,038 people died on Thursday, which increased the seven-day average to 789.
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