NOVEMBER RAIN ....
Hopes that week 35 would mark a celebratory milestone as Initial Claims finally breached below the former, pre-pandemic high were summarily dashed as Initial Claims printed +742K, rising the most in 6-weeks as Pandemic impacts re-intensified.
Clearly we’ve “rounded the corner”. Remember …. you can’t spell “Be-lie-ve Me” without a ‘lie’ in the middle.
Anyhow, we’ve spent recent weeks detailing the flow associated with the unemployed rolling out of state benefits (Continuing Claims ↓) and into extended benefits (PEUC Claims ↑).
That flow remains the defining dynamic as it relates to internal shifting’s in the Claims data, and the highest frequency, real-time read on the evolution in long-term unemployment and prospective accumulation of structural labor market damage.
Indeed, with PEUC Claims rising +233K in the latest week and up +2.56M since the large, first bolus of individuals began losing state benefits, the prevailing trend vis-à-vis separations and long-term unemployment remains ongoing.
A few bigger picture notables:
- We are in week 35 since Claims began to spike in mid-march ….
- State benefits typically last for 26-weeks and extended benefits via PEUC provide for an additional 13-weeks of benefits, bringing eligibility to 39-weeks.
- The payroll plunge was frontloaded and the first, large wave of Individuals (Initial Claims in the back half of March totaled 16.8M) will begin losing benefits in mid-December, but ….
- Notably, Missouri, South Carolina, Arkansas, Florida, North Carolina and Alabama all offer less than 26 weeks of state benefits …. so any affected individuals from those states (approx. 51K or 7% of total in the latest week) will begin exhausting 39-weeks of eligibility right around now.
The clock tick with respect to UI eligibility is obviously grating at this point, to say the least.
CLIFF DIVING
We’ve superficially highlighted the impending income cliff associated with the December 31st benefit/support program expiration recurrently.
But with year-end becoming a more tangible timeline consideration and alongside reimplementation of restrictions/containment efforts associated with resurgent COVID case counts/hospitalizations, giving a more comprehensive treatment seems appropriate.
The defining dynamics are relatively straightforward:
- PUA & PEUC: Both Pandemic related unemployment benefit programs (PUA & PEUC) carry a Dec 31st expiration. As of this morning’s data, there are roughly 13.1M people receiving benefits under those programs.
- Mortgage/Eviction/Student Loan Forbearance: Federal programs that provided for a freeze on student loan payments (and zero interest costs), mortgage forbearance and eviction moratoriums all carry the same Dec 31st deadline.
- Federal Reserve: The small business and local government lending facilities on offer from the Fed face the same year-end expiration.
In an effort to make the numbers and alphabet soup of benefit programs less abstract, consider the income trajectory for a hypothetical individual.
Bear in mind the consequences both for the individual and for aggregate consumption capacity associated with the following procession:
Job loss → UI benefits (~$350/wk) + $600/wk enhanced benefit ( Total = ~$950/wk) + No student loan payment ($200/mo) + No mortgage payment ($1200/mo) → UI benefits (no enhanced benefit = ~350/Wk = -63% income decline) → No Benefits ($0/mo) → No Benefits + Forbearance expiration on mortgage/student loans/auto loans
In other words, our hypothetical unemployed individual has progressively transitioned from $5,200/mo. in net benefit ($3800/mo. in UI benefit income + $1200 mortgage payment forbearance + $200 Student loan payment forbearance) to an acute net deficit position (i.e. effectively a swing to -$x,xxx/mo.) as the UI eligibility and forbearance programs end.
The above obviously represents a kind of worst case scenario but it gets the point across and underscores the severity of the impending income cliff for millions of individuals.
And given that Trump has not detailed any executive action plan to address the collective program expirations, the stimulus stalemate remains stuck in purgatorial, lame-duck stasis and McConnell has taken to lampooning, on a daily basis, the notion of any large-scale stimulus (anything north of, say, ~$750B) passing the senate and the deadlines (and associated scale of support drop-off) take on some added import.
tick, tick, tick …
