For nearly a decade, the weekly unemployment insurance claims data reported by the U.S. Department of Labor was a dull statistic, barely worth taking note of. Obviously, that has changed.
With the Covid-19 lockdowns have come joblessness that is unprecedented in U.S. history. As the Trump Economy roared in 2017 to 2019, the weekly figure was averaging about 200,000 initial claims, an incredibly minuscule figure given that the Department of Labor's weekly report showed a denominator (the eligible civilian population) last week of 146,125,989.
As in so many other things, the year 2020 has told the other years to, in effect, "hold my beer."
There had only been one week above 1,000,000 claims in the history of the DoL's data set -- in 1982 -- and yet, Thursday morning's release showed a seasonally adjusted figure of 1,300,000 claims. If only that were the full story. It's not; not even close.
The Labor Department reports its data on seasonally adjusted and non-seasonally adjusted bases. As someone who spent many long nights generating seasonal factors -- including for auto sales and inventories -- as a sell-side analyst, I know well the weakness of this statistical method. The whole point of seasonally adjusting is to smooth the trend for better analysis. But the whole point of Covid-19 is that there is no trend, no precedent. So seasonally-adjusted figures, the headline numbers that are always parroted in the financial media, are misleading here.
The non-seasonally adjusted number of initial unemployment claims last week was 1,503,892, an increase of 7.8% vs. the figure reported the prior week. So, while the seasonally-adjusted figure showed a slight weekly decline in claims, the unadjusted figure showed a sharp increase, and that is the true picture. The employment situation in America is getting worse, not better. I cannot emphasize that conclusion enough.
Similarly, the unadjusted unemployment rate last week was 11.9%, an increase of 0.6 percentage points on the week. Also, as always, it is misleading to count the "51" states ( DoL data includes Washington D.C. as a state) as a monolithic body, when that is clearly not the case. As per the DoL's release :
The highest insured unemployment rates in the week ending June 27 were in Puerto Rico (26.8), Nevada (20.9), Hawaii (19.9), New York (17.0), Louisiana (16.6), California (15.9), Massachusetts (15.6), Connecticut (15.2), Georgia (14.1), and Rhode Island (14.0).
That should tell an analyst that states that depend on tourism are being gutted by Covid-19. With California governor Gavin Newson reinstating lockdown measures this week and impacting many of the Golden State's attractions, and Louisiana closing bars, which are a big draw for tourists to the Big Easy, I believe these figures will worsen as July progresses, not improve.
Finally, the other innovation from Covid-19 relief has been the introduction of Pandemic Unemployment Assistance (PUA). The DoL's figures show that 15.2 million Americans claimed PUA benefits last week. Combine that with the 16.5 million Americans claiming assistance from existing state programs ("Regular State" programs in DoL parlance) and you have an astounding 31.7 million Americans on some form of unemployment assistance.
Placing that figure over the 146.1 million employable population used by the DoL gives a rate of 21.7%. Is that the real unemployment rate? It sure is.
It is sobering to think that more than one in every five Americans is not employed today. Government assistance has obviously filled the gap for many in need, but the main government benefit -- $600 per week under the CARES Act -- is set to expire at the end of July, so that stimulus is soon to wane.
I would assume that I don't have to explain the multiplicative benefits of private employment vs. government assistance to Real Money readers, and the virtuous cycle of payroll, payroll taxes, extra spending in local economies. But I guess I need Real Money readers or someone to explain to me how the S&P 500 can be trading at its level of December when there are 31.7 million Americans out of work now vs. 1.7 million out of work in December.
As the old saying goes, "Don't ask me; I just work here." We won't see a real return to growth in the U.S. economy until more Americans can make that statement honestly.
