Stimulus Still In Flux
On Thursday, the Senate failed to agree to a plan that would give unemployed people $200 in weekly benefits. That’s a positive because it’s virtually inevitable there will be a stimulus. Rejecting the lower amount for people is a good thing if it leads to more money.
Best case scenario would be $600 per week for the unemployed until the end of the year. Currently, Congress is at a standstill. Last payments were on July 25th which means people are about to go without benefits for a week or two. That’s not a catastrophe.
Longer this debate lasts, the more pressure there will be to help people. If consumer spending dips for a week, it doesn’t matter. Most already knew that Congress wouldn’t get anything done until early August, along with a bullish forecast for a cyclical recovery.
Investors are very curious how the next jobless claims report is impacted by the temporary elimination of federal unemployment benefits. That might give us an idea of how many people aren’t working because of the high benefits.
Most people are likely not purposely staying home from work. If they go back to work, they can’t quit and get benefits once the benefits come back with the new stimulus. In theory, someone purposely staying home to collect benefits might stay unemployed if they make the calculation that something will be passed.
However, that’s a risky calculation because they won’t get benefits for a week or two and the new stimulus might give them lower pay than they get at work. Therefore, it’s doubtful many people are doing that.
Seasonal Adjustment Impacts Claims Drastically
Heading into the jobless claims report on Thursday, we knew there would be headwinds from the seasonal adjustment. Claims usually fall sharply around this time of year, hence the seasonal adjustment. Initial claims are the lowest in September, but this week there is a particularly sharp decline.
Adjustment pushes the number higher. This year is highly unusual. Most people going back to work aren’t doing so for seasonal reasons. Obviously there is some seasonality involved. But that pales in comparison to the cyclical improvement since the unemployment rate is still extremely high.
As you can see from the chart above, seasonally adjusted claims were up from 1.422 million to 1.434 million in the week of July 25th which was above estimates for 1.388 million. However, this actually was a good report. Non-seasonally adjusted claims fell from 1.38 million to 1.21 million.
That 171,000 decline was the biggest since May 30th. PUA claims fell 106,000 to 830,000, which is a huge improvement.
There are now 2.04 million PUAs plus initial claims. On a non-seasonally adjusted basis, that’s a 12% decline which is the largest decline since late May. Arizona stopped reporting PUA claims in the week of July 4th, but that’s largely irrelevant.
Arizona is a small state and PUAs are less than half of the total. At most, that affected the total by a couple thousand. Arizona is about 2% of the nation’s population which is why its decline in COVID-19 cases had almost zero effect on the total in the past couple weeks.
As the chart above shows, continued claims spiked from 16.151 million to 17.018 million. Remember, that reading is a week delayed which means it’s concurrent with the BLS survey week. Continued claims have been a great measurement of the BLS reading. That was a bad week for them to increase.
Now, when you look at pandemic related claims and continued claims combined, the total looks bad. Investors are expecting a weak July BLS report.
Mastercard reported earnings on Thursday morning. We look at their data to measure the health of the consumer. As you can see from the table below, in the week of July 21st, U.S. switched volume growth was 5% which was down 2 points from the week before.
Last week in July or the first week in August could be the bottom in consumer spending growth depending on when the stimulus is passed. Just looking at this Mastercard data, makes calling a bottom look ridiculous because there barely has been a decline. However, other data is worse, especially notable when the retail sales report comes out.
COVID-19 Slowly Improves
Media’s goal is to generate attention, rather than give the boring facts. That’s a shame because COVID-19 is still a huge story even though the situation has been improving in the past 2 weeks. As you can see from the charts below, cases and hospitalizations peaked.
Some people suggested 4 weeks ago that deaths wouldn’t increase because younger people have been getting sick at a higher rate and the treatments have gotten better.
As you can see, hospitalizations peaked at about the same level as in April. It’s great that they didn’t get as high as cases did in relation to their April peak. It’s also great that deaths were even lower than hospitalizations in relation to April.
Thankfully, those calling for a massive spike in deaths in July were wrong. They theorized that because we are testing earlier now, the lag time from positive tests to deaths will increase. That didn’t lead to a huge spike in deaths.
Specifically, there were 68,569 new cases on Thursday which is about the same as last Thursday when there were 69,887. We’d all like to see more improvement, but recognize that we won’t get it every day. Data can be lumpy. There were 1,465 new deaths which is up from 1,192 last Thursday. Decline will be slow at first just like the decline in cases, but it will pick up steam as August rolls along.
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