INDICATOR: Weekly Jobless Claims, April Existing Home Sales and Leading Indicators
KEY DATA: Claims: 2.44 million/ Home Sales: -17.8%; Over-Year: -17.2%; Prices: +7.4%/ Leading Indicators: -4.4%
IN A NUTSHELL: “The continued massive number of new unemployment claims raises the possibility that new private and public sector cutbacks may be creating a major barrier to stopping the labor market bleeding.”
WHAT IT MEANS: Another day of April reports, another day of terrible data. Let’s start with the unemployment claims data. They were awful. The decline from the previous week, which was revised downward because Connecticut couldn’t get its decimal places right, was modest. We should be seeing the level gap downward as we are into the middle of May and most firms that would have shut down due to government edicts should have done so by now. In addition, the number of people receiving compensation jumped by 2.5 million, driving the percent of the labor force receiving unemployment up to 17.2%. It would be surprising if the May official unemployment rate doesn’t break 20 percent, while the so-called “real” unemployment rate could approach 30 percent.
The National Association of Realtors reported that existing home sale cratered in April, which surprised few, if anyone. The declines ranged from a “low” of 12% in the Midwest to a high of 25% in the West. In other words, markets across the country got clobbered. Reports from many national realtor services show that homeowners are pulling listings like crazy and the inventory of homes for sale was down by nearly 20% from the April 2019 level. That explains, at least in part, the sharp rise in prices. Another factor may be that the upper-end of the market is holding in better than the middle and lower-priced segments, skewing the home price data.
The Conference Board’s Leading Economic Index plunged in April, following the historic March decline. It would have been a lot larger if it weren’t for the rally in stocks. Whether that rise was rational or not we can debate, but it did keep the drop from rivaling the March decline. As the report noted, “The sharp declines in the (leading and coincident indicators) suggest that the US economy is now in recession territory.” No kidding.
IMPLICATIONS: The unemployment claims data are incredibly troubling. Forget the idea that they are coming down. If anyone thinks that 2.5 million new claims is anything but disastrous, they are deluding themselves. It is hard to believe that most of those filing new claims were victims of the initial round of layoffs. The total could include some people who were given termination pay, but most should have run out by late April. I am concerned that we are seeing a second round of private sector layoffs that, coupled with a rising number of public sector cut backs is driving up the number of people unemployed.
If that is the case, given the pace of reopening, we could be in for an extended period of extraordinary high unemployment. And that means the recovery will be slower and will take a lot longer. That is one of the reasons Fed Chair Jerome Powell commented this week that additional government spending is likely to be needed. For some reason, the administration, which has been willing to expend large sums of money on businesses, is not as supportive of helping households and especially state and local governments as they have businesses. Treasury Secretary Mnuchin has indicated that he expects to take losses on loans to business (which essentially means he is willing to lend money to businesses that will likely fail), yet he doesn’t want to spend money on governments who will use it to save jobs. I guess workers in a manufacturing plant making cup holders or whatever are more valuable than teachers, firefighters and cops. Interesting value system he has.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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