THE CAVEAT
“Fraud along with redundant and multiple filings related to antiquated technology systems and the fact that claims are generally counted in “weeks” not “people” (so someone whose claim/application was backlogged and they get paid for multiple weeks when their claim is processed would be counted multiple times) means that initial claims (and PUA Claims) serially overstate the underlying level of job loss.”
The above is from a review note I wrote back in May and a contextual caveat that has been a kind of pseudo-fixture in our weekly detailing of the evolution in Jobless Claims.
With the GAO’s recent critique of the validity of the claims data and the recommendation (HERE) the DOL now include a disclaimer on the Weekly Jobless Claims release, the above reality has been officially acknowledged.
THE CAVEAT CAVEATS
There also, however, exist similar caveats that run orthogonal to the overstatement in Initial Claims:
- The magnitude of distortion from multiple filings has very likely diminished as backlogs have cleared.
- The distortions from Fraud have probably progressively diminished as well as states have undertaken focused efforts at ferreting out organized graft (this was part of the pause in CA claims reporting in October, for example).
- Legality/morality aside, to the extent fraudulent funds were actively used to drive commerce and transaction activity, the economic impact was net positive.
- The two dynamics above can be viewed and argued from opposing perspectives. That is, one could claim that the Claims numbers (particularly earlier on) materially overstate the level of job loss (which they have). But it could be similarly argued using the same reasoning that much of the observed improvement in claims is a result of a reduction in those distortions, suggesting actual improvement in the labor market is even more underwhelming than the headline improvements suggest.
- Total Claimants understates the magnitude of impact to aggregate consumption capacity as it doesn’t capture those working reduced hours or those who don’t qualify for UI benefits.
In any case, while ‘overstatement’ may technically apply from a statistical perspective, more broadly, it’s almost impossible to overstate the magnitude of collective labor market devastation, scale of increase in income/housing insecurity and scope of psycho-emotional damage extracted by the pandemic over the last 8-months.
TURKEY'S & RABBIT HOLES
And while we’re knee-deep in the distortion discussion, it’s worth nothing that all the high frequency weekly data this week comes with the obligatory salt-grain caveat that the holiday invariably introduces distortive statistical noise, making it difficult to discern or take a convicted view on the underlying trend.
Anyhow, to non-sequitur this bad boy to its conclusionary point.
At the macro level in a developed market, spending-centric economy, employment matters with respect to income and income matters with respect to both consumption capacity and consumption proclivity.
To the extent the apparent thawing on a stimulus compromise that bridges the income gap to vaccine inauguration (so to speak) before we careen over the income cliff associated with benefit and support program expiries at year-end proves real, it absolutely matters.
I don’t want to go too far down the stratification rabbit hole here, but remember the bigger picture reality.
Lower-income service sector workers were/are disproportionately impacted. Those workers also carry the largest marginal propensities to consume. Support principally targeting this cohort of millions was both necessary and effective.
Indeed, stimulus checks and enhanced UI benefits disproportionately helped this group and was a primary reason we saw a legit v-shaped recovery in Retail Sales and why the consumption recovery has run ahead of the labor recovery.
Back in April, without a tangible vaccine timeline, the income replacement initiatives were effectively a bridge to nowhere.
Now, with a reasonable and tangible vaccination timeline, further stimulus support is the bridge connecting economic/double-dip precarity to durable recovery. It’s also the highest probability path to minimizing structural labor market damage.
Perhaps there’s an off-ramp for the tragi-comically transparent partisan dithering that has roadblocked negotiation’s to date. Perhaps the Georgia runoff is enough of a catalyst to transition fabricated empathy to legislative action. We’ll see.
The context matters more than the specific numbers this week, particularly given the holiday noise. A visual tour of the data below …..
