The upbeat October employment report is likely showing the labor market through the rear view mirror.
The weekly state employment numbers, too, as reported in the mainstream business media, only tell half the story. The entire story includes an additional 9+ million people on CARES Act supplements; a program that is growing as state eligibility is exhausted, but a program that expires as the year’s end.
High frequency data also confirm that the easy economic gains are now behind us.
Hopeful Employment Data
The October employment report looked pretty good, at least a first blush, with the headline Establishment Survey (Payroll Survey) showing a net gain of +638K. Better yet, because federal Census Bureau workers had finished and were let go, private sector employment actually rose +906K. Those sectors that had been hardest hit led the way: Leisure/Hospitality +271K, Retail +104K. In addition, the labor force grew by +768K with the Labor Force Participation Rate and the Employment/Population ratio both showing gains. This usually happens when those who have recently dropped out of the labor force (i.e. have stopped looking) find jobs – a good sign.
The sister Household Survey, from which the unemployment rate is derived, showed net new jobs of +2.24 million, and the U3 unemployment rate fell to 6.9% in October from 7.9% in September, and 14.7% back in April.
But much of this good news now appears to be in the rear-view mirror. All the analytical data and high frequency data appear to bear this out. Let’s go back to the employment numbers. A deeper look reveals that the percentage of the unemployed that have been unemployed for more than 27 weeks has now risen to 32% of the total unemployed.
This number was just over 9% back in July. As one would expect, the median number of weeks of unemployment has also risen, now at 19+. As seen on the chart below, normal is 9 (the dip to 2 in April occurred because the massive layoffs in April skewed the median number of weeks early in the economic shutdown).
These two data points indicate that long-term unemployment is going to be a big economic issue going forward.
The Weekly Employment Data
On a weekly basis, the Department of Labor puts out data on unemployment, both Initial (New) Claims (ICs), and Continuing Claims (CCs). The latest ICs (week ending October 31st) of +738K are nearly identical to those of the prior week and have hardly budged since August. This means that layoffs from businesses that contribute to the state unemployment benefit system (i.e., nearly all employers) laid off 738K people the week ending October 31st, and that level of layoffs or higher has existed, week-in and week-out, since the end of August. (Prior to that, layoffs were much higher.) Contrast this to the worst week of the Great Recession where the peak was 665K and was short-lived.
These are the state numbers. They are reported by the media as stand-alone, and, as such, they completely mask reality. Some media outlets have also picked up on the CCs data from the state reports, which showed a weekly fall of -535K for the week ending October 24th (CCs are one week lagged). Think about this. If these data are really a sign of a strengthening labor market, then why are we seeing a rise in the duration and median? In fact, the fall in CCs at the state level proves not to be much related to re-employment as much as it is a function of the exhaustion of benefits.
What isn’t being reported is the data from the Pandemic Unemployment Assistance (PUA) program (created by the Cares Act). That program paid benefits to 9.33 million people the week ended October 17th, more than in the combined state programs. The PUA program was created for the self-employed, gig workers, and independent contractors. And this program allows those who have exhausted state benefits to apply for an additional 13 weeks via PUA. The chart shows both state and PUA initial claims. On the right-hand side, you can see that layoffs have been fairly constant at 1.1 million/week for all of October, clearly indicating that little employment progress is occurring. The better-looking numbers in the state programs are completely offset by the rising PUA claims.
And, lo and behold, if one looks at the total of all the programs (state and PUA ICs and CCs), the progress shown is minor and there is speculation that the little progress shown may simply be a function of people dropping out (see chart).
Finally, the Cares Act established the PUA programs and they expire on 12/31. Given the state of politics and the various controversies surrounding the Presidential election, one must ask what happens to incomes if the PUA programs simply end? Nothing But Air!
High Frequency Data
The above comments are reinforced by the most recent high frequency data:
- New and existing home sales appear to have plateaued;
- State and local governments laid off -130K in the recently released employment data. This sector employs more than 19 million people. Without a stimulus that sends financial help, and pronto, we can expect more layoffs here;
- The Census Bureau’s most recent small business pulse survey shows nearly 30% of the businesses surveyed have declining operating revenues. That number is rising from prior weeks. In addition, more than twice as many are reducing hours as are increasing them, and 1.5 more are cutting jobs than are hiring;
- Same store sales (Redbook), restaurant bookings (OpenTable), air travel, and hotel accommodations have all rolled over in October;
- ZipRecruiter has indicated that holiday related job postings are down -18.5% from a year earlier;
- Challenger, Gray and Christmas says layoffs were the highest for any October since 2008 and are up 60.5% Y/Y.
On top of this, there has been a significant increase in the coronavirus case counts in the U.S. and in Europe, with Europe shutting down in places and certainly headed for a double-dip recession. Politics in the U.S. has, so far, made it impossible to reach consensus on a new (and much needed) fiscal stimulus to head off the brewing economic meltdown. Ditto for the next couple of months. And I haven’t even mentioned the oncoming eviction, foreclosure, and default tsunamis, as the forbearance periods for these also lapse at year’s end.
Given the current state of the economy and the political landscape, it is difficult to believe that the pace of job creation/economic activity will continue over the near-term horizon at the pace of the recent past.
'It's as if a bomb has gone off in our economy' – Wealth Professional
Low interest rates mean government revenues will grow faster than interest payments and help the debt burden. However, Poloz said the way governments spend this money during the fiscal expansion will affect the sustainability of the debt, creating a balancing act between investing in infrastructure and increasing the labour force, and printing money to create inflation.
Poloz said: “We have what looks like an inflationary policy today. But that’s only because it must counter a huge deflationary shock. It’s as if a bomb has gone off in our economy and a gigantic crater has opened up in front of us. The question is, how do we move forward?
“One way would be to walk down into the crater, cross it and walk up the other side. That’s a process that could take years and would amount to what we did during the Great Depression of the 1930s. Now, instead, central banks have filled the crater up with liquidity, meaning we can row our boats to the other side.
“At the moment, it takes an inflationary policy to counteract deflationary forces and the future depends on the balance between the two.”
Unsurprisingly, Poloz believes central banks will get this transition right but he warned there are multiple scenarios where things could go wrong. The biggest risk is politics; Governments have an incentive to inflate and, in turn, highly indebted households have an incentive to vote for it. Populism, therefore, carries a risk, especially as it’s often driven by widening imbalances in income distribution.
National child-care system would boost women's job numbers and economy, report says – CTV News
A new report estimates that hundreds of thousands of women could get back into the labour force if the Liberals follow through on a pledge to create a national child care system.
The paper to be released Wednesday makes the case that federal spending to create a national program would “pay for itself” in the form of extra income tax, extra spending and reduced social costs as more parents entered the workforce.
There is also the potential for tens of thousands of construction jobs as new centres and spaces are built, along with an employment boost in the child-care sector as it expands.
Report author and economist Jim Stanford says the lack of accessible and affordable daycare is a key reason why fewer women in their 30s and 40s are in the workforce than men the same age.
He estimates that between 363,000 and 726,000 women in the “prime parenting age cohort” between 25 and 50 could join the labour force over a 10-year period as a national child-care program is developed.
Among them would be up to 250,000 women moving into full-time jobs.
Stanford’s paper builds on previous research into the economic spinoffs of Quebec’s publicly funded daycare system, but develops estimates based on how a national system might look.
The Liberals have promised to make a long-term spending commitment to create a national child-care system, seeing it as a key avenue to help women harder hit during the pandemic in what has been dubbed a “she-cession.”
“Economists have agreed for years that child care has huge economic benefits, but we just can’t seem to get the ball over the line in Canada,” says Stanford, director of the Centre for Future Work.
“I finally think the ducks are being lined up here and we can actually make this happen,” he adds.
“This really is the moment when we can finally move forward, and it is a moment when Canada’s economy needs every job that it can get.”
A recent report by RBC economists Dawn Desjardins and Carrie Freestone calculated that 20,600 women fell out of the labour force between February and October even as 68,000 more men joined it.
The situation was most acute for women ages 20 to 24, and 35 to 39; one of the reasons the duo cited for the sharper drop was the pandemic-caused closure of child-care centres.
Child-care centres, which often run on tight margins and rely on steep parental fees, couldn’t keep up with costs during spring shutdowns and shed about 35,000 jobs between February and July. Some centres have closed for good.
The worry Stanford notes is that many of the job losses will become permanent and more centres will close without financial assistance from governments.
Scotiabank economists Jean-Francois Perrault and Rebekah Young suggested in September that creating nationally what Quebec has provincially would cost $11.5 billion a year.
Their analysis also suggested federal coffers could reap billions in new tax revenue as women in particular would get into the workforce in greater numbers, offsetting some of the overall cost.
Stanford’s estimate is for a boost to government revenues of between $18 billion and $30 billion per year, split between federal and provincial governments.
“This literally is a social program that pays for itself,” Stanford says.
“The economic benefits of giving this first-class care to early-age children, and getting their mothers in the labour market working to their full potential, are enormous.”
He argues that provinces, mired in a fiscal quagmire worse than the federal government’s, shouldn’t stand in the way of “reasonable demands” from the federal government to create a national system.
Provinces have responsibility for child-care delivery. Stanford says they cannot afford to look this gift horse of new revenues in the mouth given the federal government would foot most of the bill.
This report by The Canadian Press was first published Nov. 25, 2020.
ECB's de Guindos says Yellen's appointment good for global economy – SaltWire Network
FRANKFURT (Reuters) – The appointment of Janet Yellen as the next U.S. Treasury secretary is good news for the global economy as the former Federal Reserve chair is aware of the global ramifications of her country’s policy, the vice president of the European Central Bank said on Wednesday.
“Janet Yellen knows perfectly what the U.S. economy needs and she is perfectly aware of the implications that the economic policy of the United States is going to have on the world economy,” Luis de Guindos said at a news conference.
“The appointment of Janet Yellen is good news for the U.S. economy and the global economy.”
The ECB has criticised Donald Trump’s outgoing administration for its protectionist stance and was attacked by the U.S. president over the euro-dollar exchange rate.
(Reporting By Francesco Canepa; Editing by Balazs Koranyi)
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