Entering 2020, before overreactions to COVID and the shutdown they brought, private income derived from all sources had slowed to the lowest rate since 2010 (not counting 2013, that year skewed by tax changes which were implemented finishing up 2012). According to the latest annual revisions for it, last year, 2019, was a bit more recessionary than previously thought especially in the middle and toward the end at least where private income was concerned.
And since income’s the whole economic concern, the real big one, it points to just how much of a mistake it could turn out to have been overreacting to the one thing because of grossly underreacting to last year’s serious weakness. Though we’ll never know, 2019’s yield curve signal for a recession may not have been just a “scare.” (see above: gold, yields, early December inflection before coronavirus).
While that might help explain some consumer reluctance in 2020 post-COVID, I think it more relevant to how businesses were perceiving circumstances and therefore acting out those perceptions when imagining the weight and future of their own costs (hiring fewer and fewer new workers, contrary to the uncorroborated post-revision rebound indicated by the Establishment Survey).
In other words, before ever getting to this mess, there must have been a serious and widespread degree of apprehension.
And that might help explain this:
On the chart above, the line which really matters is the red one in the middle. While the orange perfectly describes the heavy disbursements from Uncle Sam’s heavy hand, and the green a slightly disappointing disproportional use of those disbursements, the red indicates that those jobless claims numbers are if not complete truth than close enough to it.
The Establishment Survey’s or Household Survey’s massive gains the last two months were, therefore, just as we thought and nothing more than reopening. There remains huge economic destruction currently being partially papered over by unemployment bonuses and helicopter bribes. The private economy is otherwise a total mess.
But we knew that.
If we go by unemployment figures, then we might see some really bad news for July’s private income. Both initial and continued claims more strongly indicate the labor market stalled out early last month, mid-month at the latest.
With a sharp rise in initial claims, echoed by a similar one in continued claims (one week further in arrears), there might not have been any further advance in private hiring and retaining labor and thus income this month. And that leads to the very real, perhaps probable chance that it could turn out negative.
For now, the government’s paying some of the difference – but it’s not a complete or perfect offset (as the PCE estimates show). A stall this low in the rebound, this close to the trough, that’s going to further impress behavioral shifts and changes in baseline activity and proclivities.
That means consumers who will have to (further) adjust spending habits, but more worrisome is businesses who are absolutely still shedding massive numbers of costly (measured against both perceived low opportunity as well as liquidity) employees. Having been burdened for quite a while already by a 2019 that sure didn’t turn out the way it was promised, might that factor into a current high level of skepticism about the far more serious troubles of 2020?
Maybe private employers were willing to give Jay Powell the benefit of the doubt for last year, while not hiring new workers at least refusing to layoff so many of their existing payrolls and keeping full-blown recession at bay into early 2020. That benefit, as told by unemployment claims and now BEA income data, appears to have been all used up.
It’s impossible to say for sure, but to my view this is less about the shutdowns, renewed or existing, than it is about economic factors becoming second and third order effects which Jay Powell and his magic words can’t affect.
It’s ridiculous, I suppose, that the Fed Chairman wants employers to feel all warm and fuzzy, to the point of even being worried about massive inflation and therefore getting them to believe they better start hiring masses of workers back right now before those workers become so expensive in that inflationary future he says is right around the corner.
The labor and income numbers, like bond market numbers, show that no one outside the financial media and the NYSE is buying or acting it (even NYSE isn’t so sure since June 8). Maybe some businesses want to believe as an emotional coping mechanism, but they have to know by now that magic words about a fiery inflation future can’t help anyone meet current payroll and keep up survival levels of cash flows especially after the cool, frigid debacle of last year’s supposedly hot situation that sure didn’t pan out.
Instead, momentum seems to be waning and, alarmingly, according to the income data corroborating the claims data, the reopening economy may never have achieved all that much to begin with. That about sums up longer run, market-based growth expectations plumbing new depths.