Employment Data Lags While Rebound Continues

Economic Report Monitor #44

June 18th, 2020

Here we go again. Another jobless claims number breaks a million as 1.508 million initial unemployment claims were filed last week, down just 58,000 from the week before. In addition to another high initial claims number, continuing claims fell just 62,000, maintaining its level above twenty million at 20.544 million or 14.1%. Both trends contradict the surprise May jobs report and suggest the rebound seen in other areas of the economy has not been replicated in the labor market. In fact, the federal version of the Pandemic Unemployment Assistance program saw claims increase 66,063 in the week of June 13th after a fall of over 100,000 in the previous week.

The momentum in the jobless claims report differed from the Philadelphia Fed Manufacturing Survey which saw its headline business activity data jump 70.6 points to 27.5. The readings for new orders and shipments saw similar increases as both rose sharply out into positive territory. While jumps in the overall index are optimistic, it's important to note that respondents reporting increasing data was still less than half. The "no change" category accounted for about a third of respondents which, of course, means a lot of businesses are still seeing depressed levels of business. This phenomenon was most visible in the rebound of prices paid and prices received which saw 78.5 and 83.9% of their answers marked "no change." The good news is that expectations are vastly more optimistic. Almost a quarter of all respondents see better general business activity, more new orders, and more shipments in 6 months from now. 

Interestingly, employment survey data lagged behind the rest of the survey data as both indexes were two of the three questions where more respondents reported "decreasing" than "increasing." Number of employees improved from -15.3 to -4.3 and average employee workweek edged up from -7.1 to -6.5. However, this again was a result of most respondents seeing "no change" with only 25-30% seeing any kind of change in employment. With 77.8% of firms reporting they expect a decrease in production in 2020 Q2, they are likely to hold off on hiring until there is more certainty about a recovery in the 2nd half of the year.

Employment is just one component of the economy though and only partially represents the strength of the recovery. The Conference Board Leading Economic Index was released and revealed a 2.8% increase in May, up from two sharp declines in April and March. The index was carried by an improvement in unemployment claims in May, accounting for two-thirds of the gains, which could mean the momentum of the rebound may be lost in June. One interesting observation in the movement of the Coincident Economic Index is that it dropped at a much larger magnitude during the COVID-19 crisis than the 2008 financial crisis. Regardless, the first impression from this report is that the bottom in the economy looks to be in.