U.S. State Initial Claims Rise for Second Consecutive Week
State initial jobless claims for unemployment insurance rose to 1.434 million during the week ending July 25 from a slightly upwardly-revised 1.422 million (was 1.416 million). This is the second consecutive weekly increase, suggesting some backtracking in the job market, which is consistent with other high frequency job-market data such as the Dallas Fed’s Real-Time Population Survey Unemployment Rate. The Action Economics Forecast Survey anticipated 1.4 million claims. The four-week moving average of initial claims, which smooths out week-to-week volatility, but is less important at the moment because of changing conditions, edged up to 1.369 million from 1.362 million.
Claims for the federal Pandemic Unemployment Assistance (PUA) program, which covers individuals such as the self-employed who are not qualified for regular/state unemployment insurance, decreased to 829,697 in the week ending July 25 from a downwardly-revised 936,073 million (was 974,999). PUA claims peaked at 1.348 million in the week ending May 23. Numbers for this and other federal programs are not seasonally adjusted.
Continuing claims for unemployment insurance increased to 17.018 million in the week ending July 18, from a downwardly-revised 16.151 million (was 16.197 million). Continuing PUA claims, which are lagged an additional week, decreased to 12.413 million from an unrevised 13.180 million. Pandemic Emergency Unemployment Compensation claims increased to 1.055 million in the week ending July 11. This program covers people who were unemployed before COVID but exhausted their state benefits and are now eligible to receive an additional 13 weeks of unemployment insurance, up to a total of 39 weeks. (Haver Analytics)
Hardest hit Services are showing no hope of a quick recovery:
(Consumer spending is thus unlikely to sustainably recover anytime soon:
Spread of the coronavirus is moderating nationwide, as some of the worst-affected states are now seeing declines in the number of new cases per day. But the level of new cases nationwide remains very high. As a result, states are leaving reopening plans on hold or tightening restrictions further. Over the past few days Kentucky, Mississippi, Oregon, and Rhode Island have increased restrictions. Several states also announced their reopening plans would remain on hold for longer. Even if new cases continue to decline nationally, states may wait to see new cases at a much lower level before pushing forward with additional reopening measures. (Goldman Sachs)
Just released this a.m.: Personal Income and Outlays, June 2020
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GDP Hole Dug Mainly by Consumers Stimulus checks and unemployment blunted the record drop in GDP, but much of the money was saved and not spent.
The Commerce Department on Thursday reported that gross domestic product fell an annualized 32.9% in the second quarter from the previous quarter after dropping 5% in the first. That annualized figure shows how much the economy would shrink if the second quarter’s pace of contraction lasted a year, which thankfully won’t happen. But with the level of GDP down 10.6% from the fourth quarter in actual terms, the economy is in a hole more than twice as deep as it was following the financial crisis.
Spending on services, the biggest expenditure category, fell an annualized 43.5%, reflecting how spending money on many services categories, such as going to the dentist or eating in a restaurant, was simply impossible for many Americans. Spending on nondurable goods, which includes clothing and grocery items, fell by a smaller 15.9%.
By contrast, spending on durable goods—long-lasting items such as cars and washing machines—fell by only 1.4%. That muted decline probably came about because, when people decided to spend the stimulus checks they got from the government, they bought bigger-ticket items that they might have been planning on eventually buying.
The personal saving rate—saving as a share of after-tax income—swelled to 25.7% in the second quarter. (…)
Notably, Congress’s nearly $3 trillion in appropriations couldn’t stop the economic collapse. Government grew 2.7% in the second quarter, led by a nearly 40% increase in nondefense federal outlays. The feds offset a $795 billion decline in employee compensation with a $2.4 trillion increase in transfer payments. But the GDP decline shows that $1,200 cash payments and jobless benefits can’t replace a dynamic private economy. (WSJ)
There is hope that bulging savings resulting from unspent government money because of lockdowns will save the economy…
…but those savings will need to be used to offset lost labor income as unemployment remains very high for quite some time. Here’s Moody’s take on that:
The economic damage caused by the intensifying pandemic is clearly evident in the job market. Most ominous is the Census Bureau’s weekly pulse survey of nearly 100,000 people, which began in late April to help assess the fallout of the pandemic. It suggests employment will see a stunning decline of more than 6 million jobs in July. Perhaps this is overstating the recent weakness in the job market, in part because the pulse data are not seasonally adjusted. But it is important to recall the survey nailed the surprisingly strong gain of almost 5 million jobs in June reported subsequently by the Bureau of Labor Statistics. (…)
Non-government sources of employment data from workforce
management companies Kronos and Homebase also indicate the job market has gone soft, especially in states where infections have re-intensified. In the 10 states with the greatest infection spread since the start of June, Homebase reports that hours worked at its small-business clients have gone nowhere since late May. Hours worked in states where the infection spread has been more or less stable have also gone flat recently, suggesting the intensifying pandemic is even spooking businesses and consumers not suffering directly.The timing of all this is particularly problematic as communities across the country scramble to figure out how to begin the school year. If kids are not able to go to school because school districts determine it is not safe, and students instead must receive online instruction, it will be more difficult for their parents to get to work or be as productive while they multitask at home. Just over 15 million households nationwide have at least one child between the ages of 5 and 12 who presumably will require some parental supervision. (…)
While this enhanced UI is only one of the many ways lawmakers have helped hard-pressed households during the pandemic, letting it expire or even renewing it at a lower amount will be a significant hit to the economy. Based on simulations of the Moody’s Analytics macroeconomic model, going cold turkey on the enhanced UI benefit would cost the economy 1.1 million jobs by year’s end and increase the unemployment rate by 0.7 percentage point. There has been talk that Senate Republicans support cutting the benefit to $200 per week. If this becomes law, nearly 1 million jobs will be lost by year’s end, and unemployment will be 0.6 percentage point higher. With unemployment still firmly in double digits and seemingly set to go higher regardless of what lawmakers do now, this would seem a poor policy choice.
Given that the election is just a few months away and the political pressure to do something is sure to be overwhelming, it is hard to fathom that lawmakers will not come to terms and sign legislation on another fiscal rescue package. Not doing so would doom the economy and any hope of their being re-elected. But lawmakers need to go big and go quickly.
Eurozone Economy Contracts by Record 40%
The eurozone’s gross domestic product fell 40.3% annually in the three months through June, exceeding the U.S. economy’s 32.9% contraction, according to data published Friday. (…)
“The business in Europe has been and currently is stronger than in the U.S.,” Bjørn Gulden, chief executive of German sports-goods maker Puma SE, told reporters Wednesday. In the U.S., demand has varied widely from state to state, he said.
Europe still faces major challenges. The region is highly dependent on exports and tourism, neither of which will recover fully until the virus is under control around the world. (…) Foreign tourism makes up around 14% of GDP in Greece, 12% in Portugal and 8% in Spain, according to research firm Capital Economics.
Tourists are staying away this year, with occupancy rates of holiday accommodation below 30% in Italy, Greece and Spain. (…)
But recent mobility data from Google suggest that Europeans are currently more willing to shop than Americans. Some European households have accumulated savings that they can now spend, since many were paid but confined to their homes, said Ms. Amiot. (…)
The recovery is less pronounced in the U.S. than in Europe, partly because demand there didn’t collapse quite as dramatically as in Europe during the shutdowns, Mr. Dahlheim said.
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How strong is too strong? Euro’s 10% rally fans fears of side effects After years of gloom, euro bulls will be celebrating the single currency’s brisk rally to two-year highs against the dollar, yet the euphoria is now being tempered by caution over what side effects the rapid run-up might bring.
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US dollar set for worst month since 2010 in ‘relentless’ sell-off Investor angst mounts over path of US economic recovery and political uncertainty
China’s Manufacturing Recovery Picks Up the Pace China’s official manufacturing purchasing managers index rose to 51.1 in July from 50.9 in June, marking the fifth consecutive month that factory activity expanded.
(…) the overall nonmanufacturing index slipped to 54.2 in July, compared with 54.4 in June, the statistics bureau said, indicating a slight deceleration in the recovery for China’s service sector as heavy floods hit swaths of central and southern China.
Taken together, the data suggests that consumer demand continues to lag behind the recovery in China’s industrial capacity, which has recovered more quickly from the coronavirus. (…)
On the manufacturing side, subindexes for both production and new orders grew at a faster pace in July, thanks in large part to a substantial improvement in new export orders—though the measure of overseas demand still remained in contraction territory. (…)
Monday we get the purchasing managers indices. Purchasing managers react to demand. Here are the sales managers indices for the world courtesy of World Economics via The Daily Shot. Pretty feeble V so far:
Source: World Economics
McKinsey’s latest poll of executives:
In North America and in developing markets, executives have become less hopeful about their countries’ economies and more cautious in their views on potential scenarios for COVID-19 recovery. That’s a key finding from our latest poll of more than 2,000 global executives. Leaders in China and India, on the other hand, are growing more upbeat.
Covid-19 Lawsuits Begin to Hit Employers Coronavirus victims and their families allege workplaces failed to protect them, including Safeway, Walmart and Tyson; employers said they took appropriate steps to combat the virus. The cases are part of an unfolding liability threat facing U.S. companies as many look to resume operations.
EARNINGS WATCH
Before yesterday’s tech results, we had 267 reports in, a 82% beat rate and a +15.6% surprise factor. The 267 companies having reported showed a 32.3% decline in earnings on a 9.1% hit on revenues.
Q2 earnings are now seen down 37.3% vs -43.0% on July 1. Q3: -23.2% vs -25.0%/ Q4: -12.7% vs -13.2%. Analysts are shy of adjusting second half estimates to the Q2 surprises as executives remain generally cautious (i.e. in the dark).
Trailing EPS are now $141.38.
Don’t Let the Stock Market Rally Mask Reality Maybe investors are suddenly showing foresight like never before, and are looking past the pandemic to an eventual recovery. But probably not.
(…) Every recession is different, though, and perhaps this is one where it is easier for investors to envisage the eventual recovery than in past downturns. There is substantial uncertainty about what course the coronavirus might take in the months ahead, along the unemployment rate is above its highest levels following the 2008 crisis and gross domestic product just registered its sharpest downturn on record in the second quarter. A newfound belief in profits’ ability to recover seems dubious.
Rather than concluding that investors have finally become Warren Buffett-like and that they are less focused on companies’ near-term travails than in the past, it is worth asking whether something else is going on. For example, maybe the response the Federal Reserve mounted to the Covid-19 crisis, which has dwarfed its financial crisis responses in both speed and scope, has convinced investors more than ever that the central bank will do whatever it takes to prevent markets from being disrupted. The same goes for the massive stimulus the federal government put into place this spring.
Either way, their confidence will cut into future returns. It usually takes several years for stocks to make up the ground lost in a bear market and a lot of gains are front-loaded. In this case, though, a bigger-than-usual chunk of the current bull market may have already been eaten up.
And what if the safety net investors believe Washington has put in place below the market is flimsier than they suspect or the pandemic’s future path even worse? Well then investors might revert to their usual form and run away from stocks again.
The U.S. election is getting ugly – and investors are getting nervous Investors are increasingly preparing for the risk of a contested U.S. presidential election come the fall, worried that an ugly political situation will create volatility across markets.
Meanwhile, as Axios reports
The U.S. Postal Service is experiencing days-long backlogs of mail across the country after Trump fundraiser-turned-postmaster general Louis DeJoy “put in place new procedures described as cost-cutting efforts,” the WashPost reports.
- Postal workers are warning “that the policies could undermine their ability to deliver ballots on time.”
Why it matters: “The backlog comes as the president … has escalated his efforts to cast doubt about the integrity of the November vote, which is expected to yield record numbers of mail ballots because of the coronavirus pandemic.”
