An “unexpectedly” cool summer that will certainly turn up the heat as the global economy’s winter stubbornly refuses to thaw. We keep getting more and more indications that the economy’s rebound from the depths of April/May slowed way down in and around June/July. That lowered trajectory, while still upward, isn’t nearly enough and it appears to continue all the way to the end of October.
First alerted to this possibility by jobless claims because these figures are the closest to real-time (only a week in arrears for initial claims), the most up-to-date numbers for them remain on the same reduced rebound path. First-time filings were an enormous 751k for the final week of last month.
While that was the lowest since this recession (we hope it turns out to be a recession) began, the rate of improvement has been reduced down to very little. This deceleration neatly coincides with the same problem picked up from other data series suggesting this rebound stall.
Here’s what we put together yesterday beginning with the ADP private payroll estimates along with the BLS’s CES figures for the same (which will be updated with the release of tomorrow’s government payroll report).
Something clearly changed as summer began, a possibility picked up in markets and then corroborated across a wide variety of unrelated data points.
Here we’ll add another, the initial jobless claims series to bring this all back to the labor market once again:
The reopening frenzy happened and seemed to be going well until June – right around when the first reopening payroll report (for May) stunned everyone by being so hugely positive. It’s been a frustrating contrast ever since, in that there’s clearly the two separate pools of labor experiencing very different outcomes.
The first includes those who were thrown out of work because their workplaces were (unnecessarily) shuttered by government panic. The gigantic positive numbers have come from this category. With more places opened back up, millions in this situation flooded back to work.
While an undeniably positive development, this obscured what was going on in the other labor pool. Anyone unfortunate enough to be included in this one had been thrown out of work finding themselves without any work to go back to. This is the far more important group so far as determining what’s in store for the longer term.
More and more it’s becoming clear that some of those in the first group are being involuntarily shoved into the second. They went back to work expecting to pick up where they left off, as their employer clearly had, only as the summer dragged on the level of work didn’t pick up nearly as much as needed.
For tens of thousands maybe more, back to jobless claims for at least a second time.
What all this means is that the labor market, especially the private labor market, is in far rougher shape than it might otherwise seem. Even more troubling, those workers who had been in the second labor pool since closer to the start are more and more exhausting their regular state benefits. With no jobs and no prospects, hundreds of thousands are forced to roll forward onto the federal government’s PEUC program.
Good for them in that they absolutely need help and aid, bad for the economy in terms of longer run scars in behavior and outlook (not just those who aren’t working, but also those who are who see what’s really going on and react according to what they see rather than what the Fed wants them to believe).
But why are employers being so fickle? As we’ve shown before, the permanent income hypothesis is one factor because of another. The federal government is shoveling cash at businesses in an unprecedented fashion, but this doesn’t mean “stimulus.”
Companies react to a regular stream of customers very differently than they do should a huge percentage of their customers disappear. Even when in the aftermath of that disappearance Uncle Sam shows up to make up much or even all of the cash difference.
A steady stream of customers indicates something about the future that isn’t written anywhere on the government’s digital checks. And everyone knows, as has been reinforced repeatedly over the last month or so, those checks are subject to partisan bickering and political forces including colored interpretations about how things might be going from the point of view of the top down.
In the labor market, businesses activities are being based on their still-depressed customer counts regardless of how much “benefit” being thrown at them from this top-down government-fueled hope-and-pray methodology.
The BLS has already given us more depth to understand this problem. In advance of the payroll reports tomorrow, the agency released today its estimates on productivity – which include hours worked by quarter. The latter remains eye-opening:
During Q3’s vaunted gigantism, including the outward appearance here with total hours, you can clearly see just how little the labor market – in terms of actual hourly counts rather than employee headcounts – has come back from the depths. To put this in context, the number of hours put in across the private economy during the summer quarter, the gigantic rebound quarter, was about the same as were worked two decades ago in the year 2000.
The annual rates of change again obscure what are ongoing deep scars; down by 43% at an annual rate in the spring followed by up 37% at an annual rate for the summer in which the gap between the prior peak and the current figure is nowhere near that close.
Furthermore, perhaps more important, the level of productivity gained by cutting so many hours and employees just isn’t enough for it to make sense to keep bringing back workers – let alone start thinking about hiring more. While the productivity estimate was revised upward for Q2, the huge layoffs, it’s come way back down in Q3. Higher productivity meaning profit potential, along with belief in recovery, that’s what sparks the animal spirits which convinces employers to add back shifts and even more payrolls.
Back in early June when that big surprise reopening payroll report was released, I wrote about the apparent confusion over what have been these two distinct labor pools:
What seems to be happening is that given the big positive in May’s payroll data everyone now assumes there’s only the former [first group] and none of the latter [second group]. Because of this huge “surprise” in employment data, the assumption is being made how once the lockdowns are lifted everyone really will go right back to work and we all go on with our lives as if nothing much happened.
That’s because ultimately it won’t matter much – if at all – precisely when the economy bottomed out; if early May, or perhaps June even later in the year. That’s what all the fuss has been about, when. The question, the only question, is how thoroughly (and quickly) it comes back. If it only gets partway as even the optimistic models have assumed, even most of the way to give “stimulus” more benefit of the doubt, that’s a disaster.
And the reason it would only get partway is the economic stuff happening underneath that right now has been buried by the non-economic rebound underway as economies are reopened. We see the big monthly positive this month, the reopening, but we don’t see the destruction which must’ve already taken place.
But, as we’ve suspected since then, we are today more and more seeing that destruction uncovered as the reopening enthusiasm fades further and further away. It leaves exposed to us not just a clearer view on the second labor pool, but also many reasons why there does seem to be so many, way too many, stuck in it with no end in sight.
The Fed’s QE manipulations are just no substitute; they aren’t going to be near enough to make businesses believe in an inflationary future such that it overcomes the huge economic (and financial) hole the private economy continues to experience whether or not such reality is obscured by these gigantic positives. Monetary policy is not about money printing at all (there’s no money in it), it’s about make believe and making consumers and employers believe that they can forget about today and think only great thoughts about tomorrow.
Tough to do when you look at what today really looks like; and how a fairy tale doesn’t help you or your workers.
This is not merely a US problem, either. Rather, the existence and substantiation here in the American labor market is itself corroboration of similar exercises globally. The purported “V” for the world economy never had a chance and it has so much less to do with COVID than you might think.
Humpty Dumpty was, after all, a cautionary tale even little children could easily understand. It’s not so easy once you break something.