INDICATOR: Weekly Jobless Claims, March New Home Sales and CARES Act Commentary

KEY DATA: Claims: 4.4 million; 5-week Total: 26.5 Million/ Home Sales: -15.4%; Over-Year: -9.5%; Prices (Over-Year): +3.5%

IN A NUTSHELL: “The job gains since the Great Depression have been wiped out and the end to the surge in unemployment claims is still weeks away.”

WHAT IT MEANS: There was good news and bad news in today’s unemployment claims report. Okay, the good news was not really good, but let’s go with it anyway. Once again, unemployment claims were extraordinarily high last week, which surprised nobody. But this was the third consecutive moderation in the level. Claims peaked at nearly 6.9 million and this week’s 4.4 million constitutes a 36% drop from the top. Okay, 4.4 million is so unimaginable that you really cannot call it good, but at least the trend is down. That said, don’t expect the numbers to get back to more normal, whatever that may be, for a while. We are starting to see white collar and government workers being laid off or furloughed and that will keep claims levels elevated. The April unemployment rate, which will be released on May 8^th, could approach 20%, as the numbers we have seen include the survey week. Also, not everyone who has become unemployed has filed for unemployment insurance, so these data are the lower bounds of the number who have lost jobs. Indeed, we could have the worst of all worlds when it comes to the unemployment rate. Not only is the numerator, the number unemployed, rising but we could see another drop in the denominator, the labor force. There was a sharp decline in the labor force and participation rate in March and that might be repeated.

New home sales fell sharply in March, led by huge declines in the West and Northeast, where Covid-19 has been wreaking the most havoc. There was a sharp drop in the Midwest but sales largely held their own in the South. Homes for sale ticked up but prices continued to rise decently.

CARES 1,2 etc. Commentary: Well, the drive to survive continues in Washington, but I am not sure whose survival is being targeted – small businesses or politicians. Supposedly, the giveaways were being directed toward small businesses, but as we know, when it comes to free government money (or tax breaks or whatever), you cannot keep a good lobbyist down and large companies managed to find ways to grab a share of the funds as well. There are attempts to limit that in the latest bill, but we shall see.

But my concerns are not that not-so-small businesses are gladly going on the government dole. It is the concentration of funds on small to mid-sized businesses and the failure to deal with the problems facing other segments of the economy that bothers me. It is not unusual that in a typical year, over 800,000 firms go out of business (called “deaths” in the BLS Business Dynamics Report). Most of those are small businesses. Consequently, by trying to save small businesses, the government is in reality just sending money to many firms that would fail anyway. But it sounds good that the government is worried about small businesses, so politicians make believe they are creating policies to help them.

I am not saying that it is wrong to help the small business community. We clearly need to do that and the program may keep the total number of deaths down. My concern is that the programs are not being designed and targeted correctly and worse, are failing to adequately help other portions of the economy where jobs may be more stable and needed.

There is relatively little money for state and local governments who are bearing the burden of fighting the pandemic. Indeed, Senate Majority Leader McConnell said: “I would certainly be in favor of allowing states to use the bankruptcy route”. The result of this antagonism toward helping state and local government is there will be massive budget deficits at all levels of government across the country. That will lead to layoffs, a reduction of public services and diminished spending on critical needs such as education and infrastructure. Is it really better that the government gives money to businesses that will fail than to local governments to keep teachers, police and firefighters working and universities open? Which is better for the long run health of the economy, a better-educated workforce and better roads or more pizza parlors? The point is that supporting the public sector will insure that jobs and services will be maintained. The CARES Act and its successors throw cash against the business wall with the hope that some stick.

But that is not all. The health care sector has been at the front of the battle to keep the country safe and the economy from going into an extended depression, yet it has been shortchanged massively. Hospitals are bleeding revenue as elective surgeries have been postponed and typical emergency room visits are way down, while at the same time their costs have skyrocketed. Doctors have seen their practices shrink dramatically. Shouldn’t health care providers be the prime targets of the drive to protect paychecks? What will the health care sector look like when this is over? And I am not sure if rural health care would even exist if the pandemic had reached deeply into those parts of the country.

Trillions of dollars are being spent on trying to keep the economy going. The CARES Act and its successors have shown little care in spending that money wisely.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.