The Labor Market Is In A Race Against Time

We think by now you are aware this has been an unusual recession. We mentioned in a previous article that in the previous cycle many were worried about how high auto loan delinquencies would get in the next recession because they were increasing in 2019 and auto debt was high. It turned out that the delinquency rate fell in Q2. That’s backwards. There are supposed to be more delinquencies when people lose their jobs. As the chart below shows, credit card and mortgage delinquencies fell in Q2 as well. Disposable income growth was very strong because of the stimulus and the $600 in weekly federal unemployment benefits. That prevented disasters for consumers.

The stimulus is long gone. There are proposals for another stimulus of similar size and scope to the last one ($1,200), but that won’t come until September at the earliest. Congress couldn’t agree to another stimulus. Congress generally doesn’t get things done unless one party is in charge or their backs are against the wall. They didn’t feel enough pressure to act this summer because the stock market has been doing great and the July labor report was strong. Most indications show the economy is starting to accelerate. Redbook same store sales growth in the week of August 8th showed growth rose from -7.1% to -3.4%. Obviously, that’s only one week of data in a volatile stat, but it does support the narrative that growth is accelerating now that COVID-19 cases are off the July peak.

President Trump did an executive order to extend $400 in weekly unemployment benefits until December 6th, but there’s a loophole. States need to contribute 25% of the money. If they decide the money they are already giving people is part of the 25%, people will only get an additional $300. Even still, this isn’t the disaster some are making it out to be when they call for a “very rapid increase” in delinquencies. The variable is the speed of the recovery in the labor market.

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