Unemployment is Much Worse Than it Looks

Mish

The unemployment rate fell 2.2 percentage points to 11.1% but claims data and the reference week raise significant questions.

Inquiring minds ponder the discrepancy between the jobs report and Department of labor Unemployment Claims.

Jobs Rebound 

Earlier today I commented by Jobs Rebound by 4.8 Million But Huge Headwinds Remain

I question both the strength of the rise in jobs and the decline in the unemployment rate based on claims data and the reference week.

Reference Week 

The household survey week which sets the unemployment rate is the week that contains the 13th of the month. 

Some claims data released today is for the week ending June 13 but first let's discuss the lead chart. 

Continued State Unemployment Claims in 2020 

Continued claims have shown little improvement for five week. On May 16, continued claims were 20.841 million. There were 19.290 for the week ending June 20 and were 19.231 million on June 13.  

These are seasonally-adjusted numbers, and they rose since last week. 

State claims are the best single reference point. Those claims represent people eligible for unemployment at the state level. 

Primary PUA Claims

Primary PUA Claims in 2020 July 1 Report

When Covid-19 hit various unemployment compensation schemes hit at the Federal level, notably PUA.  

People are eligible for PUA based on lost income and forced part-time work. So not everyone on PUA is technically unemployed, but some are.  

The numbers in boxes pertain to the reference weeks for this jobs report and the last one. 

All Continued Claims 

All Continued Claims in 2020 July 1

All Continued Claims include Primary PUA Claims and Emergency PUA Claims plus various Federal programs. 

All Continued Claims and PUA Claims are not seasonally adjusted. 

Total It Up 

It is hard to know how many PUA claims represent people working 0 hours, but the answer is somewhere between 20 million and 30 million. 

Note that All Claims and PUA Claims hit new record highs and both are up since the prior reference week that sets the unemployment rate. 

Unemployment vs Claims in June 13 Reference Week

  • Unemployed: 17.750 Million
  • Continued State Claims: 19.231 Million
  • All Claims: 31.491 Million

The discrepancy between continued state claims and the number of unemployed is 1.481 million.

And that does not count those on PUA who are genuinely unemployed.

Is the difference entirely fraud?

Part-Time Jobs

  • Total Part-Time Work Change: -1,571.000
  • Involuntary Part-Time Work: -1,605,000 - Household Survey
  • Voluntary Part-Time Work: +2,743,000 - Household Survey

Part-Time Jobs Discrepancy

Supposedly, voluntary part-time employment is up by 2.743 million and involuntary part-time employment is down by 1.605 million. 

That nets to an increase in 1.138 million total part-time employment except the BLS says total part-time employment declined by 1.571 million. 

These numbers never net because of how the BLS determines them, but the discrepancy is a whopping 2.709 million. 

Unlike other, I do not believe the BLS does any of this on purpose, but Covid has wrecked many things including the infamous birth-death model and seasonal adjustments.

Birth-Death Model

The Birth Death Model pertains to the birth and death of businesses. In a normal economy more businesses are created than go out of business. The BLS adds or subtracts a net number of jobs based on its models.

I believe the models are now nonsense but I cannot prove it, nor can anyone until we have mass revisions next March. 

My take is that a record number of businesses closed or will close due to Covid-19. Some of those people may have found other work and if so are double-counted. Others were counted when they should not be.

Looking Ahead

State Continued Claims,, PUA Claims, and Total Claims all rose this past week. 

Reopenings In Reverse

Importantly, reopenings are in reverse and that is not reflected in any of this data.

Governors in Washington, California, Florida and Texas have all paused or reversed reopenings. 

Alaska, Arizona, California, Georgia, Idaho, Oklahoma, South Carolina, Tennessee and Texas all reported single-day record levels of new Covid-19 cases on Wednesday. 

Hospitals in some regions are overwhelmed with patients. Expect more reversals. 

The Fed Promotes a Quickening that Takes Many Years

Finally, the Fed openly admitted a Quickening that Takes Many Years

There will not be a V-shaped recovery. Instead the Recovery Will Have Many Shapes, sector by sector.

Mish

Comments (23)
No. 1-13
dbannist
dbannist

My highly suspect anecdotal evidence is telling me that unemployment has likely peaked, but that there is an ongoing deluge of closing retail establishments that will continue to bleed jobs. This trickle will continue to offset any job gains.

In my town small town of 75k, we lost 3 businesses in the last 2 days that were announced. Two were restaurants and one was a gym. Undoubtedly, there are many more I have not heard about. This is going to affect employment going forward.

It's not just the companies that had to lay off people back in March. It's the retail businesses that are bleeding cash and must either close or lay off people that were being protected by PPE.

Anyone who thinks it's a V shaped recovery is in for a huge surprise.

randocalrissian
randocalrissian

Too many numbers pointing in so many directions - it's hard to make sense of it even if you know exactly how to count all the beans. My amateurish guess is that the inaccurate BLS numbers are, be it deceipt or happenstance, acting as a distraction from the number of people who have become classified as permanently not employed, and thus removed from the UE tally. Like air leaking from a balloon someone keeps blowing up.

Tony Bennett
Tony Bennett

Hope everyone enjoyed the Rebound.

H2 will see fiscal stimulus waning, moratoriums & forbearance ending (folks will then be on the hook for resumed payments + pay back of deferred payments ... in some cases lump sum at resumption), and most importantly - credit tightening.

Oh, and if there is Second Wave ...

Realist
Realist

It is good to see that some people are back to work. But it is difficult to see how employment will continue to trend up while the pandemic continues to spread out of control inside the US. 50,000 daily new cases, heading towards 100,000 cases (unless they stop testing, as Trump would like).

Meanwhile Europe and Asia are re-opening safely after reducing the number of cases by over 90%.

The US economy is not going to bounce back vigorously until you get the pandemic under control. And wishing it away (Trump’s strategy) is just not going to cut it.

njbr
njbr

Continued claims almost flat, yet 4 million new jobs in the same period.

Zombie employees?

Montana33
Montana33

It seems that during volatile times, this modeling of unemployment is highly suspect. There are complicated adjustments as you say and we don’t have a good read on part time vs full time. Birth and death models of businesses can’t possibly be accurate if they rely on past trends. I understand why the BLS can’t change their model since there are no reference points for what we are experiencing.

Six000mileyear
Six000mileyear

The governor in Connecticut has delayed opening the bars and large indoor gatherings. He's not taking chances.

Herkie
Herkie

I noticed at CNBC today they emphasized the fact that some 4 million+ new jobs were created. While relegating the fact that 1.47 million new unemployed filed claims this week and surpassed the 1.3 million expected.

Here is the thing, that 4+ million new jobs in June was for a full month, while the 1.47 million new unemployment claims was for a week, which if you recal there are 4.3 weeks in a month. One look tells you that there were no NEW actual jobs created, but that 4+ million people went back to jobs that were only temporarily on hiatus for Covid closures and were just returning to work. But that was for the entire month of June even as we saw well more than six million plus people filing new unemployment claims in June so NET there were actually fewer people with jobs at the end of June than at the start, and that is really bad news for several reasons. And it is also before the second wave started to break a couple weeks ago and is not really getting going.

The coronavirus may have mutated to become more infectious, Dr. Anthony Fauci says

We all wanted this to just go away but we also all speculated on what would happen if it mutated and became more infectious than it already is. It is also proving to be deadlier with the death rate now at about 5%. It is also affecting younger people that thought they were immune.

What all this amounts to is far stricter shut downs and quarantines, ever more restrictions. First wave = economic catastrophe, second wave = economic death.

I don't know about you all but I did not go out and hoard the first time around like so many others, as a result when I did go shopping I was faced with shortages of almost everything, I went more than 2 months without seeing an egg for sale, and I still to this day have not seen hand sanitizers. You do occassionally see toilet paper but it small packages and very freaking expensive. It is pure luck when you do see it, so tomorrow I am going out shopping and buing everything I can load in my car. Dry goods mainly because of Florida power outages in summer. Also small propane camping fuel. I have to be able to boil water or I will not have coffee, and that would be more than I could handle, for one thing I would die of constipation without coffee I believe.

And the real bottom line is that millions that SHOULD have been counted as unemployed never were. Their applications were rejected at state level and the overloaded phone and computer systems made filing a practical impossibility. Many gave up.

I look at one of my favorite restaurants Bone Fish Grill, they reopened May 1 so I had my birthday dinner there. They had removed more than half the tables, booths were blocked off ever other closed. No bar seating at all. Seating strictly by reservation. The servers wore masks and gloves and they expected you to just know all their contacless rigamarole, they stayed as far away as possible and I felt pretty much ignored the whole time, having to battle to get attention. Even though I was one of three tables in the place with customers. And there were employees everywhere looking busy wiping things, the smell of disinfectant made a sharp counterpoint to the basil infused olive oil dipping plate for the warm ciabatta. I could almost detect a hint of goat cheese and calamata olive if it were not for the spray disinfectants.

In fact that was a half staff and they could have gotten away with less than half the workers there. Restaurants of that sort get by on slender margins. So slender if they have even one slow night in normal times they send employees home and temporarily reduce hours for staff. Now they are trying to make it on something less than a quarter of the business they used to do this time last year, maybe even less than 1/6th the tabs. People who are not trained in finance can understand when it is explained to them how margins work, but they do not inuitively think that way otherwise.

Thake the Bone Fish Grill as an example, it has fixed overhead, those are expenses they have no matter how many customers do or do not walk through their doors and does not matter how much they spend. Rent/mortgages, some taxes, franchise fees, electric and other utilities, minimum ordering requirements from vendors, etc. It takes on average for most chain restaurants 85% of the customers in an average month to pay those bills. Then there is the COGS, the cost of goods sold, that is the food and drinks, the direct costs related to serving patrons. Then there is the variable overhead, the wages, insurance related to hours they work like workers comp and UI. Those take up another 12% of all tabs they ring up to pay for those. Then there is misc. expenses and is a major reason bars and restaurants have such a hard time making a go of it, these can just kill a business, they can vary wildly year to year and month to month. A power outage of justa day can reduce revenue enough to turn a profit for the month into a loss.

So, the profit margin, the REAL money they make is dependent upon just a few customers each night. It can amount to maybe say 300-500 bucks. But, but they are only going to have that clear profit under normal to good circumstances about one night in three. This is why the restaurant business is so challenging. So far they got by because they were able to stem losses with government bailouts, they still lost money but between the bailouts and credit extended they were able to say they are still in business. It means however that they are going to have to up revenues by a lot to make up for the losses so far, and they realistically cannot. Unless those loans are commuted to grants they will have to repay taking up all actual profits for years to come, and they cannot raise prices higher than they already were. They had that formula down to a science, they knew to the dime what they could charge before they started to lose business.

So, my experience with dining out in a newly reopened restaurant I knew and liked for my birthday the first week of May was basically a disaster and I have not dined in a restaurant since. I will when they come up with a vaccine but not before. Now we face a second wave that promises sickness and death far worse than we have seen so far, and those snooty nations that are barring us from entering? They will get it too. Economically speaking I cannot wait to see how CNBC spins this. And remember, the USA is one giant Bone Fish Grill. Profits depend on a certain level of business and the macro economy is just as indebted to margins as the restaurant. We have incurred such losses that ALL read that and think about it ALL profits for years to come will have to be pledged to paying down the cost of this pandemic. Anyone not pledging every cent of profit to repaying the cost is cheating propbably with government/fed help at the expense of others. Yours or mine now doubt since as plumbers say shit goes downhill. And we are at the very bottom.

Casual_Observer
Casual_Observer

If the claim doesnt get processed then you arent counted as unemployed. Most states have a backup in claims processing.

Greenmountain
Greenmountain

I am beginning to think economics reporters have completely forgotten all logic. Of course jobs are coming back. Reporters act like it is amazing - well life is coming back. The economy is reopening. But the real news is why layoffs are continuing if we are on the upswing and that gets no coverage. Like wise for sales. But hardly a word about how this compares to activity last year. And in my small universe the extra unemployment is keeping a lot of folks alive. Watch the data in August - and yes they are looking for work.

pauldoc99
pauldoc99

Another thing to consider here is the level of unemployment that currently exists while the government is supporting businesses with the PPP. When this expires, or businesses are no longer prevented from laying off workers, what does that do to the rate? How many jobs has this temporarily saved? 5 million? 10? I think it's possible that even if the virus starts dying down, the number of people going back to work is offset by businesses laying off folks at the end of PPP.


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