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
Note: the Government Accountability Office (GOA) recently criticized the validity of claims data and recommended that the Department of Labor include a disclaimer in its official weekly jobless claims release indicating that the numbers it reports for weeks of unemployment claimed do not accurately estimate the number of unique individuals claiming benefits. The GAO's full report can be found here.
Back in May, Hedgeye Macro Analyst Christian Drake highlighted this exact phenomenon:
"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."
While these distortions and inaccuracies are impossible to adjust for, we remain focused on the trend and rate-of-change in the data over time.
Initial unemployment insurance claims (SA), filed in the week ending November 27th were 712 K, down -9.5% w/w. Cumulative initial claims have now hit ~70 million, although this includes a fair amount of duplicate filings and over-counting on both the state and PUA levels.
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.
Pandemic Unemployment Assistance (PUA) claims filed in the week ending November 27th were 289K, down -9.5% 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.
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 November 21st, 2020, were 5.52 million, down -9.3% w/w. Continued claims of 5.52 million represent ~84% of the previous high-water mark of ~6.6 million set during the financial crisis.
However, as many of those programs cover 26 weeks of benefits, and we're now in Week 37 of the crisis, the new metric to focus on is PEUC (Pandemic Emergency Unemployment Compensation) as this figure, which reflects Week 35 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 the PEUC program - bringing eligibility from 26 weeks to 39 weeks.
With the improvement in continuing claims from regular state programs largely driven by benefit expiry or migration into federal support programs, and with all pandemic related support program (PUA, PEUC, rent/eviction moratoriums, etc) are set to expire on December 31st absent any form of congressional renewal, 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.