“Handicapping network effects is always where the macro alpha lies. But precisely quantifying the diffuse and inherently unknowable derivative effects this magnitude of shock may propagate is mostly intractable …. We do know that some measure of structural damage and hysteresis always characterizes shocks of this scale/scope and the notion that we’ll see a full and expeditious recovery and that consumers and businesses don’t retrench isn’t particularly plausible.”
We wrote the above back in March as the COVID carnage was still in initial crescendo.
A full 4+ months later, we remain in the thralls of a virulent (not so) ‘temporary’ shock with Initial Claims still printing north of 1.4M and the labor/broader macro recovery curves having discretely flattened at meaningfully suppressed levels as the friction between cyclical recovery and structural damage begins to grind more forcefully.
A few contextual highlights:
- This week is the first to capture any main thrust of re-closings/paused re-opening initiatives. Indeed, State Initial Claims rose over +100K W/W to 1.42M while PUA Claims rose to 975K, taking Total Initial Claims to its highest level in a month at 2.39M. Note that this week’s release also corresponds to the survey week for the July Employment report.
- Continuing Claims remained the silver lining, improving by 1.1M to 16.2M while Total Claimants remained stubbornly elevated at 31.8M.
- The dichotomy between worsening Initial Claims and progressive improvement in Continuing Claims remains ongoing. But, as we highlighted last week, the labor rebound remains woefully underwhelming for what should be the steepest part of the recovery curve … and particularly with new job loss now re-accelerating and support funding almost entirely exhausted.
- Evidence in support of a increasing transition to permanent job loss/business closures continues to layer amidst a protracted suppression in activity. This is no intuitive surprise … if you are losing your job now, a full four months into the recovery, how likely is it that your layoff is, in fact, ‘temporary’?
- The peri-holiday period in July is always noisy and subject to larger statistical distortion so flavor your data filtering with some additional salt grains.
- While a next fiscal package is pending and all but assured, due to processing mechanics, enhanced U.I. benefits will end this week for many states.
