The top slant of the (political) K continue to cast an apathetic gaze downward as intangible notions around political ideology increasingly become synonymous with structural damage and income devastation for ‘tangible’ families.
Initial Claims (SA & NSA) rose for a second week while Continuing Claims fell by 1.165 million and Total Claimants held above 25mn.
Recall, ‘improvement’ in Continuing Claims is, at least partially, illusory as it more likely represents individuals losing eligibility than it does large-scale re-employment.
Also recall, we are now 30-weeks into the pandemic payroll plunge and typical state benefits last 26 weeks. Continuing Claims are one week lagged, so represent flow dynamics for week 29, and we have seen a steep drop off in Continuing Claims over the past three weeks (-768K, -796K, -1165K, respectively).
In other words, we’ve seen Continuing Claims drop meaningful right in step with the expiration associated with the 26-week eligibility timeline.
Indeed, PEUC claims - recall, PEUC claims provide an additional 13 weeks of benefits once normal state benefits (which typically last 26 weeks) are exhausted - spiked +818K W/W and are up 1.17 mn in the last three weeks. PEUC Claims are lagged two weeks and represent flow associated with week 28.
It's probably only going to get worse …. With California playing protagonist.
California has been a microcosm for the scope and scale of the COVID payroll cliff at the national level and in its announcement that it was going to pause claims processing in an effort to clear the existing backlog, ferret out fraud, and buttress the system against further organized graft, it’s been a case study for the larger dynamics plaguing Claims application and processing from the beginning.
Today, let’s drill down on CA specifically while bearing in mind that the Cali specific experience also characterizes the broad experience of most/all states.
- California: CA claims numbers remain on pause (probably through next week) and they continue to use a placeholder value equal to the reported September 16th level. California makes up more than a 25% of total Initial Claims so the numbers obviously matter and are requisite for discerning a clean read on the underlying trend.
- Constrained Throughput: An experience CA claims processor can manually work through 24 claims per day and CA can manually processes a maximum of 2400 claims per day. Given the challenges associated with changes in eligibility requirements and a higher percentage of claims being flagged for further review (a flagged claims gets pushed out of the automated system and pushed to manual processing for further review/clarification), full processing of claims has proved an impossibility.
- Backlog: Given the increase in claims and processing constraints, unprocessed claims were increasing at a rate of ~10K per day and had built to north of 600K as of Sept 16th. See Taskforce report >> HERE.
- Fraud: PUA claims are the primary target for fraudulent claims. The expeditious disbursement of stimulus payments and enhanced UI benefits was paid for by broadened eligibility/lower regulation and a tacit acceptance that some people who didn’t need money would get it. Part of the pause was to evaluate the level of fraudulent claims, which CA deems may be significant. Indeed, AZ has estimated that 500M in fraudulent Claims may have been paid with ~900K out of 1Mn claims potentially being fraudulent. (see: AZ Central, BloombergLaw)
- Legality/morality aside, to the extent fraudulent funds were actively used to drive commerce and transaction activity, the eco impact was net positive. In any case, the eligibility for those individuals is set to expire and/or see a hard stop as states tighten scrutiny.
- The impending Distortion: The build-up in Initial Claims and large bolus of push through associated with backlog processing is likely to juice the Headline Jobless Claims numbers once CA reporting comes back online. Following the initial week(s) of upward pressure, the impact is likely to reverse and provide modest downward pressure.
The above is some useful context but its also probably besides the (larger) point.
Initial Claims are 25% above the highest levels observed historically and going the wrong way …. 30+ weeks in. Permanent job loss is step functioning higher, income insecurity is rising as individuals lose benefits and structural labor market damage is becoming an entrenched reality.
Powell is openly imploring congress to spend, effectively promising ‘if you issue it, we will come (& purchase it)’.
Again, that the Fed balance sheet has effectively matched the increase in deficit spending dollar for dollar is not an accident …. It’s a preview.