Below is a complimentary research note from our Financials analyst Josh Steiner. We are pleased to announce that we recently launched Financials Sector Pro, Josh's new research product. Click HERE to learn more.
HEDGEYE FINANCIALS WEEKLY LABOR MARKET READING
Recall, the data from two weeks ago included a change in methodology. As such, the data from two weeks ago represented the first week reflecting the methodological adjustment, with prior weeks not being revised, new and old seasonally adjusted data will not be comparable.
Initial unemployment insurance claims (SA), filed in the week ending September 10th were 860K, down -3% w/w. Cumulative initial claims have now hit 61 million, although this includes a fair amount of duplicate filings and over-counting on both the state and PUA levels.
Pandemic Unemployment Assistance (PUA) claims filed in the week ending September 10th were 659K, down -24% w/w. 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.
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 unemployment insurance claims (SA), the total number of people claiming benefits in all programs for the week ending September 10th, 2020, were 12.63 million, down -7% w/w. Continued claims of 12.63 million are currently ~1.9x the previous high-water mark of ~6.6 million set during the financial crisis.
As employers struggle to find additional employees to fire and as the expiration of unemployment eligibility draws nearer for those currently on benefit rolls, we are likely to see claims mechanically trend lower in tandem with falling continuing claims.
Hedgeye Macro Analyst Christian Drake summarizes below:
One thing worth highlighting is that Claims may become increasingly beholden to a kind of inimical vice grip dynamic whereby Claims begin a get squeezed lower alongside the progressive emergence of a double sided constraint.
That is, with more than 61Mn in cumulative Initial Claims filed (yes, that number overstates the magnitude of actual job loss) on the “supply” side we are slowly and simply running out of people to fire. On the back end, those eligible for U.I. benefits (which typically last 26 weeks) will decline as the huge bolus of individuals currently unemployed for 15-26 weeks push past eligibility expiration.
To invoke the timeless bathtub example:
If the inflow of newly unemployed slows while the outflow picks up as individuals exhaust their eligibility timeline, then the level of water in the bath (Initial Claims) will realize a mechanical drawdown.
Suffice to say, Initial Claims will invariable continue to march lower but the How of that descent will begin to become more meaningful. The decline may or may not be the Good Kind."
In summary, we continue to see confirmation of our broader labor market narrative of temporary job losses giving rise to more permanent/structural job loss as suppressed consumer demand and expiring unemployment benefits and payroll support measures take effect.