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Takeaway: Benefit expiry continues to drive at least half of the decline in continuing state claims as initial claims hold to dauntingly high levels.

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. 

The Torpid Recovery Continues For Weekly U.I. Claims  - 05.21.2020 jobless cartoon

HEDGEYE FINANCIALS WEEKLY LABOR MARKET READING

The Torpid Recovery Continues For Weekly U.I. Claims  - Summary

Recall, the data from August 28th included a change in methodology. As such, the data from August 28th 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 October 31st were 751K, down -1% w/w. Cumulative initial claims have now hit ~67 million, although this includes a fair amount of duplicate filings and over-counting on both the state and PUA levels.

The Torpid Recovery Continues For Weekly U.I. Claims  - Initial

Pandemic Unemployment Assistance (PUA) claims filed in the week ending October 31st were 363K, up +1% 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.

The Torpid Recovery Continues For Weekly U.I. Claims  - PUA

For the last few months we've been advising that, given the unprecedented speed with which initial claims have manifested, the better 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 state programs for the week ending October 24th, 2020, were 7.29 million, down -6.9% w/w. Continued claims of 7.29 million are currently ~1.10x the previous high-water mark of ~6.6 million set during the financial crisis. 

The Torpid Recovery Continues For Weekly U.I. Claims  - Continue

The Torpid Recovery Continues For Weekly U.I. Claims  - All

However, as many of those programs cover 26 weeks of benefits, and we're now in week 33 of the crisis, the new metric to focus on is PEUC (Pandemic Emergency Unemployment Compensation) as this figure, which reflects week 31 since the onset of the pandemic-related employment shock, captures the flow out of regular state claims into the 13 weeks of extended benefits offered under PEUC program. 

The Torpid Recovery Continues For Weekly U.I. Claims  - PEUC

Delving into this further, the week of 09/18 corresponds to week 26; hence, we are able to observe five weeks of comparable continuing and PEUC claims data since unemployment benefits began to broadly expire.

As Hedgeye Macro Analyst Christian Drake has noted, over those five weeks, we observe that continuing claims have fallen by -4.92M, whilst PEUC claims have risen by +2.15M, implying that ~44% of the recovery in continuing claims is attributable to the transition of claimants into PEUC. Conversely, ~56% of the recovery in continuing claims over this three week period can be attributed to benefit expiry or re-employment. At a minimum, we can conclude that more half of the reported improvement in continuing claims represents individuals who remain unemployed. Moreover, all pandemic related support program (PUA, PEUC, rent/eviction moratoriums, etc) are set to expire on December 31st absent any form of congressional renewal.

In sum, 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.