Initial Jobless Claims Still Over 1 million as Sluggish Employment Recovery Continues

Economic Report Monitor #48

June 25th, 2020

From The Real Economy Blog

Jobless claims take the headlines again as elevated initial claims numbers continue to be reported. Last week 1.48 million initial claims for unemployment were filed, just a 60,000 drop from the week before. Continued claims also remained high, despite states reopening, with a 13.4% insured unemployment rate dropping just 0.5%. That means 19.522 million individuals are still claiming unemployment, just a 767,000 drop. Employment just hasn't recovered as most would hope with businesses still forced to keep costs low on restricted cash flow. There is also the concern that individuals receiving more in benefits than they would in wages might decide to delay their return to the workforce. These are just two factors playing into the sluggish recovery seen in jobless claims.

Durable goods new orders data was a bit more optimistic as the May report showed a 15.8% increase in new orders. Transportation equipment, an industry that was hurt badly, saw the largest rebound at an 80.7%  increase (however, they are still down -31.6% YoY). Capital goods, an industry impacted by the reduction in business spending, jumped 25.8%. Shipment data, reported with new orders, lagged for the most part, up just 4.4% in May. There seemed to be an expectation that capacity would be ramped up in June with reopening beginning. If a lockdown has to be reinstated due to surge in cases, unfilled orders could see an increase in the June report. For now, unfilled orders are down -4.1% YoY, so that wasn't the case in May. Inventories are also a bit elevated right now, up 2.7% YoY, so that could also see a surprise increase on new lockdown orders.

Advanced indicators for May described a quiet lockdown economy. The goods deficit grew 5.1% on a -5.8% decrease in exports and a -1.2% drop in imports. Drops in manufacturing activity lead to large decreases in industrial supplies and automotive vehicles, down -11.8% and -11.1% respectively. The declines extended steep drops in April. Imports recovered in industrial supplies and consumer goods, the largest groups of US imports. The reduction in activity also lead to declines in inventories as retailers and wholesalers halted orders as consumer demand froze during the lockdown. Once again, durable goods industries were affected the most as wholesale durable goods inventories dropped -1.8% and motor vehicle & parts inventories dropped -15.0%.

Finally, another June manufacturing survey was released, this one from the Kansas City Fed. The report documents another recovery in the composite index which bounces to 1 from -19 in April to signal a flat manufacturing sector. Shipments and new orders at 8 and 7 signalled a slight expansion from the bottom with expectations of more improvement in 6 months. Employment was still contracting but at a slower pace at -6 while average workweek was exactly flat at 0. Prices show signs of improving but only slowly. Capital expenditures are still decreasing from a year ago at -23 and are even expected to decrease in 6 months with that expectations index at -3. This is consistent with several PMIs that indicate spending will be decreasing by some time despite improvements in shipments and new orders. The current and future struggle will continue to be to get back to normal capacity before any thoughts of expansion. In a special question, about 85% of respondents that received funding from an assistance program said that it prevented layoffs or furloughs. This at least confirms that stimulus provided by the government has been effective in reducing employment losses in manufacturing during the initial wave of the COVID-19 outbreak.