Jobless claims are not a BLS statistic, which is one key reason why we might not expect perfect consistency with the major payroll reports at times. Times like these, in particular. Instead, the numbers for unemployment insurance applications and payments are tracked by the US Employment and Training Administration (both agencies fall within the Department of Labor). And if the numbers keep up this way, there’ll be so much less of the former so as to overwhelm any contributions made possible by the latter.

For the first week in July 2020, the government says another 1.3 million involuntarily separated American workers filed initial claims for their state government to determine their eligibility to receive insurance payments. One point three million. First week in July. As I wrote back at the end of March, quite near the beginning of all this:

The dislocation is upon us, but that’s no longer our major concern. Having been left no chance to avoid one, the only issue now is how quickly we get out from under it. If 20 million American workers maybe more are dispatched to the unemployment line in the weeks ahead, how soon do we get them back to work?

Just as important, do they all get a chance to go back?

As we’ve been somewhat stunned to note around here, never before had initial claims been greater than 700,000 in any prior week. Never mind the first big shutdown burst I was writing about back at the end of March and early into April. Over the last five weeks, just those five weeks, initial applications have summed to a combined 7.3 million.

That’s more than twice (2.2x) what had been the worst five weeks in modern US economic history (reached on two occasions, once in 2009 and before then in 1982). And its more than double the number of claims filed in the 16 weeks (almost four months) before this damnable mess began.

Two months into “reopening” and the level of labor market destruction continues to be off-the-charts. And that’s not counting the legitimately massive hangover of the previous 43 million who had filed claims.

The further we go on in this situation, the more it cannot be denied that the economy has been harmed beyond the non-economic disruption related to the COVID-mania shutdown. And the more the employment situation (to use the BLS term) is destroyed, the more likely, and the more vicious, second and third order effects will almost certainly be.

Any idea of avoiding those altogether has been thrown out the window, or at least put under the anecdotes of states running hundreds of thousands if not, in a couple reported cases like California, millions behind in processing claims. Continued claims have improved in absolute terms, but that reduction doesn’t amount to a meaningful change in what absolutely continues to be a dire situation (if you hadn’t noticed by now in most major cities).

As to those second order effects, we’ve also noted some of them over these intervening months, including a big one: consumer credit. Especially of the revolving variety, the use, disuse, or retirement of credit card balances by itself isn’t a major economic factor. Instead, it’s what the direction of revolving consumer credit, and intensity of that direction, tells us about the mindset of consumers.

Talk is cheap, as in Jay Powell. What are consumers actually doing?

And not just any consumers, but those who otherwise should be in position to lead the recovery (if there is to be one). Lower income debtors are more likely to be charged off, while consumers at higher income levels reduce their debt load by paying it down importantly when they perceive the highest risks to their individual situation.

As you would expect, the highest incomes don’t generally sweat minor downturns since they are, to a substantial degree, insulated from them; it’s the big ones that get their attention, and get them paying off revolving lines as a measure of prudence against the widespread uncertainty severe contractions bring especially to the labor market.

It sure turned out that way during the Great “Recession” and also its aftermath which curiously didn’t look especially like a recovery should have, at least to higher-income consumers:

So, while any meaningful increase in the delinquency and default process must be a factor, by far the most evocative interpretation is contained in that first sentence quoted immediately above: “accelerate repayment of existing debt balances as their expectations of the future sour.” That sure fits perfectly with the way the gross aggregate economy had itself behaved over the same period in question.

According to the Federal Reserve yesterday, revolving consumer credit fell sharply again in May. In May. The reopening economy and the enormous payroll surprise that went along with it.

The seasonally adjusted estimate decreased by $24.3 billion in May from April. While that was better than the massive (revised) $58.2 billion drop during that latter month, still at -$24.3 billion this is the second worst on record. During May.

This is not really a discrepancy, nor inconsistent with the gigantic positives for the labor market calculated by the BLS. It is a further acknowledgement that there are two distinct labor markets right now, and only the first of those (workers who were laid off or otherwise separated because they couldn’t get to work) is being positive (or acknowledged in most commentary).

It’s the second group, those separated because they have no work to go back to, which appears to be on the minds of revolving credit borrowers who just so happen to be skewed toward higher income labor. And I don’t just mean those unfortunate millions who actually have been laid off, rather the second order effects more broadly impact those who perceive their own situation as having become precarious.

Maybe they weren’t let go, and they remain employed, but these people alter their behavior anyway as a matter of caution in case they might be next to fall under the corporate ax. Even if that isn’t a huge probability, it is being perceived as more realistic now than it was certainly in February, but also maybe even when compared to the earliest days of the shutdown.

Unlike the “V” narrative which suggests the flipping of a switch turning the economy back on, both jobless claims as well as revolving consumer credit together indicate that view isn’t so widely shared. There is palpable nervousness which has already shaken the foundations of what’s supposed to drive this “V” stuff: the Fed signaling to fund managers to buy stocks because of the monetary policy myth, which then is supposed to definitively signal to consumers how everything will be fine.

To the second group in the labor market, and all those closely observing it, everything is not fine. If it was, first-time jobless claims wouldn’t still be nearly twice record levels this deep into the calendar and high-income consumers wouldn’t be furiously repaying their revolving obligations realistically worried they be next to file.

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