Some Brief Labor Market Thoughts

The public seems skeptical of the 26 million Americans lost their job headline

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Details of this morning’s Conference Board consumer confidence survey provided some support for the optimistic outlook implied in the ‘Y’ shaped recovery in the equity market. Like the daily Morning Consult and University of Michigan consumer sentiment surveys, the expectations component improved in April. Improvement in these surveys is far from convincing, frankly it isn’t clear whether these surveys are simply responding to the recovery in stock prices. What we found interesting was the less than we expected drop in the labor differential, the difference between respondents characterizing jobs ‘plentiful’ less those calling them ‘hard to get’. During the drawn out recovery from the financial crisis, we used this indicator to forecast the U6 underemployment rate, however the relationship with the U3 employment rate is also strong. On the surface, the drop from 29.5 to -13.6, due to consumers responding that jobs are plentiful falling to 20% from 43.3% and the percent describing them as hard to get jumping from 13.8% to 33.6%, sounds quite negative. The thing is though, the -13.6 reading is consistent with an unemployment rate a bit over 6%, miles from the rate implied by continuing claims near 14% or the Bloomberg economist survey consensus of 16% for the April employment report.

Figure 1: The April labor differential reading is consistent with a 6% April unemployment rate using the logarithmic regression. This is some distance from the 13.8% level implied by the insured employment rate from the continuing jobless claims series and the 16% Bloomberg economist consensus forecast.

Figure 2: The cumulative increase in initial jobless claims since mid-March is 26.735 million. The press regularly characterizes this total as the number of Americans who have lost their job due to the coronavirus. It might be a compelling headline but it is likely far from accurate. Continuing claims lag initial claims by one week. Using a February baseline of 214,000 average weekly initial claims and 1.710 million continuing claims through the week of April 10 there are 6.972 million that appear to have gone back to work given the difference between baseline adjusted continuing claims (15.976m) and 21.238m adjusted initial claims.

Early in the Corona Contraction we published the table below to illustrate the dynamism of the sectors caught in the vortex of the Coronavirus storm. As a refresher, 40% of leisure & hospitality employment turns over every three months. In the construction sector the quarterly sum of hiring and separations, both voluntary and involuntary, is 34% and in retail churn is 30%. Amidst all the chaos of the population-based stay-at-home orders, PPP loans, expanded and enhanced unemployment insurance benefits, we really have no idea how many workers are furloughed, how many restaurants will not reopen, construction projects will be abandoned and whether this will be the event to accelerate the rationalization of excessive retail floor space. Perhaps the respondents of the Conference Board Survey are being naive, or this is the first serious outlier data point in the 23 years of data points in figure one. Still, it would appear that quite a few more consumers think they still have a job or it’s going to be considerably easier to get one than the media headline of 26 million Americans lost their jobs implies. It’s just one data point point, but given signs of stabilization in vehicle sales, airline bookings and other high frequency indicators, not to mention the performance of the equity market, the economy might be considerably more resilient than the econocants dire forecasts imply.

Figure 3: Worker reallocation is the quarterly sum of hiring and separations; both voluntary quits and involuntary layoffs. Yes you are reading this correctly, 25% of the labor force turned over in the 3 months ended February, before governors shut down a large portion of economic activity.

Barry C. Knapp

Managing Partner

Ironsides Macroeconomics LLC



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