June 18, 2021

Labor, The Forgotten Dimension In The Economy.

It's easy to equate how the economy is performing, with how the stock market is doing. Currently, with all the major averages either at or near all time records, we assume that means the economy in general is performing well. And of course, with the tremendous stimulus that has been put in peoples hands, people have cash. And so things appear to be going along just fine.


So it came as a bit of a surprise to many on Wall Street, when yesterday's release of the initial claims for unemployment took a sudden jump higher. Analysts expected that after seven straight weeks of declining claims, that it would just continue this week. In fact they had projected another 7% decline in initial claims this week. After all the economy is doing well isn't it?


In fact yesterday we saw initial claims for unemployment jump back above the psychological barrier of 400,000. Coming in at 412,000 for the week just past.


Equity markets quickly sold off on the announcement, although they did regain their footing latter in the session, with the Dow and S&P 500 closing fractionally down on the day.


But it was in the bond market that we saw the most profound effect. Bond's closed significantly higher on the day, and have continued their rally in this mornings pre-market trading. Due, I believe, to the bond markets assessment that this economy is not as strong as Stocks would indicate.


And to understand why, we need to gain some historical perspective on all this. And the labor market can give us just such a perspective.


We begin with the initial claims for unemployment, released in yesterday's report. Now initial claims, are those workers, who for the first time, after being laid off, have now reported to their state employment office, to request unemployment their unemployment benefits.


So, it's the leading edge, if you will of the unemployment picture. And currently as noted these initial claims have been coming in at about 400,000 per week. Initial claims had peaked during the height of the economic lock-down at more than 5 million, so it might seem like this 400,000 number is not so bad. Indeed we're making progress. But put in historic perspective, with the significant exception of the Great Recession in 2008 and 09, for 20 years initial claims had been below the 400,000 market. And for the 5 years leading up to the Pandemic, initial claims had been averaging below 300,000 per week. Well below where we are now.


Indicating that businesses continue to layoff workers are a rate far above a recovery level for the economy.


We see this same anemic employment level in two other measures of the labor market. The long term, 27 week, unemployment. Currently this measures stands at 3.7 million, who have been out of work for nearly 7 months. This is 300% higher that the level of long term unemployed just before the Pandemic. Back then long term unemployed was only 1.1 million. Today 3.7 million.


Finally the overall labor force, shows perhaps the best measure of just how this economy is performing. Again just before the Lock-Down began, in January and February of 2020, the total number of workers in the US was 164 million. Immediately that number dropped by 8 million workers, as businesses and corporation around the country laid off workers. Now we have recovered 4 million of those jobs. But that's only half way back to “pre-pandemic” levels.


In other words, we've recovered all right. But from the labor market's point of view, we've only recovered half way.


We have a long long way to go to full recovery in this economy.