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HEDGEYE FINANCIALS WEEKLY LABOR MARKET READING
This morning we thought we'd attempt to help reconcile at least some of the growing divide between the weekly claims numbers and the monthly nonfarm payroll report.
The first thing to understand is that the unemployment survey is conducted during the week ended on the 12th of each month. As such, the relevant compare in the claims data is the week of the 12th of June relative to that of the 12th of May. The table below illustrates the relevant data.
For June, continuing state-level claims were 19.5mn with an IUR (Insured Unemployment Rate) of 13.4% during the week-ended June 13th. However, the relevant May period is unfortunately sandwiched between the weeks of May 9th and May 16th. Those weeks saw sharp W/W changes in the claims data. The week of May 9th had continuing state-level claims of 24.9mn and an IUR of 17.1% while the week of May 16th had cont'd claims of 20.8mn and an IUR of 14.3%.
The BLS reported 4.8mn jobs added in June and an unemployment rate of 11.1%. If we look at the difference in continuing claims from the weeks of May 9th to June 13th it equates to a reduction of -5.4mn in continuing claims (24.9mn - 19.5mn). Using the week of May 16th instead, the change is -1.3mn (20.8mn - 19.5mn).
Bear in mind also that due to misclassification errors (see Covid-19 footnote in the BLS report), the actual unemployment rate is 12.1% and not the reported 11.1%. Knowing that, the spread between the 12.1% unemployment rate and the corresponding 13.4% IUR for the week of June 13th is a more modest 130bps.
The broader context here, however, is this: even with the last two months of reported payroll gains, only one-third of jobs lost have been recovered. Meanwhile, the share of those reporting permanent job losses (588k M/M) are now rising at a pace consistent with the fastest pace seen during the GFC.
Observing the table below, in addition to the 1.43 million regular state unemployment insurance claims, there were an additional 840K Pandemic Unemployment Assistance (PUA) claims filed in the week ending June 27th.
Recall, PUAs are part of the CARES Act and cover workers ineligible for traditional state UI assistance, including independent contractors, self-employed individuals, and others as detailed in the CARES Act. In other words, the real, total initial claims filed last week is actually 1,427,000 + 839,563 = 2,266,563, which is down -4.1% from the prior week.
Jobless claims are likely tracking in the vicinity of ~34 million now. As of June 27th, there were 31.49 million people collecting insurance (State: 17.55 million + PUA: 12.85 million + Other: 1.09 million). In the last two weeks (06/20 and 06/27), a further 1.72 million PUA + 2.91 million State have filed.
Thus, 31.49 million + 1.72 million + 2.91 million = 36.1 million, which on a labor force base of 153 million (36.1/153), yields an unemployment rate of 23-24%. Now, to be fair, a portion of those collecting unemployment insurance are doing so because of reduced hours and not full unemployment. These workers are classified under "Workshare" programs and are reflected in the second row from the bottom of the following table.
Nevertheless, it's safe to say that the unemployment rate reflected in these figures likely exceeds 20%.
In rate-of-change terms, weekly initial state claims and initial PUA claims fell -3.7% and -4.7% w/w, respectively; meanwhile, the number of people claiming benefits across all programs increased +3.0% w/w.
With little silver lining in rate-of-change terms, one is forced to observe the ugly absolute picture of historically elevated claims.
Given the unprecedented speed with which initial claims have manifested, our view remains that the best way to contextualize the magnitude of the labor market crisis is to look at continued claims.
Continued claims of 19.29 million are currently ~2.92x the previous high-water mark of ~6.6 million set during the financial crisis.