Unemployment claims have continued their slow downward trajectory, but so, too, has the economic rebound.
MANHATTAN (CN) — Markets tumbled on Thursday after unemployment data showed a fairly stable share of new claims.
The Dow Jones Industrial Average lost 361 points, a 1.4% decrease, while the S&P 500 lost about 0.5%. Once again the Nasdaq avoided any carnage, managing to gain 0.5% by the closing bell and nabbing a new high point: 10.547 points.
According to the Labor Department’s latest report, more than 1.3 million Americans filed new claims the week ending July 3, a slight drop from the prior week and right on the money for what many economists had predicted.
While continuing claims also dropped, falling by several hundred thousand, they are still extremely high at 18 million.
What didn’t drop were claims filed under the federal government’s Pandemic Unemployment Assistance program — set up to cover those workers like independent contractors who are not typically eligible for unemployment. More than 1 million new claims were filed under the PUA program, an increase of 42,000 from the previous week.
“The behavior of the equity markets has been somewhat perplexing,” said Nancy Vanden Houten, lead economist at Oxford Economics. “There does seem to be a disconnect” between Wall Street and the unemployment data.
Vanden Houten said the unemployment data was “noisy,” noting that some states may be slow to get accurate data reported, and other economists have noted potential overlap in the numbers.
“While regular state UI and PUA claims should be completely non-overlapping — that is how DOL has directed state agencies to report them — some states may be misreporting claims, so there may be some double counting,” Heidi Schierholz, a senior economist at the Economic Policy Institute, wrote in a post on Thursday.
Some experts worry about a resurgence in unemployment if some states cannot contain Covid-19. “Facing an inability to forecast future demand, the best thing to do is hire cautiously, if at all, or allow payrolls to decline organically,” Joel Naroff of Naroff Economics wrote Thursday. “Today’s data were good, but the see-no-evil markets need to look past those numbers and start asking the right question, which is: where do we go from here?”
A number of stimulus programs — including the Paycheck Protection Program loans to small businesses and the additional $600 weekly plus-up to unemployment payments — have been credited with keeping unemployment from skyrocketing out of control and from devastating the economy more than it has.
Lawmakers currently are debating a fourth stimulus package that may address both those critical programs, even as some push to reallocate the PPP’s $130 billion surplus to hard-hit industries or make it available for borrowers in a second round of loans.
Treasury Secretary Stephen Mnuchin told reporters on Thursday that the next stimulus package may include additional unemployment benefits but that such benefits would “be no more than 100%” of a worker’s typical paycheck.
During her daily press briefing, White House Press Secretary Kayleigh McEnany said the falling unemployment numbers were encouraging. “The V-shaped recovery continues,” she said. “We like what we see on the horizon.”
In reality, however, a quick, V-shaped recovery is not yet occurring. A weekly economic tracker put together by Oxford Economics found that employment, financials and demand have only slowly made their way back to pre-pandemic levels. “It’s now evidence that the economy is entering Q3 with much less momentum than previously anticipated,” the note states.
Vanden Houten predicted that many businesses with PPP loans payrolls will soon look at their payrolls to examine if they should make further layoffs.
“We’re going to see more layoffs at businesses shut down in the weeks ahead, and also as individuals impose their own shutdowns on themselves,” he said.
Others warn the unemployment data does not paint a fulsome picture of the jobs landscape. While many white-collar workers have been able to keep their jobs during the shutdown due to teleworking, blue-color workers in industries like retail trade and hospitality remain at risk of losing their jobs, according to researchers at the International Monetary Fund.
“The pandemic is likely to change how work is done in many sectors,” Mariya Brussevich, Era Dabla-Norris and Salma Khalid wrote. “Consumers may rely more on e-commerce, to the detriment of retail jobs; and may order more takeout, reducing the labor market for retail workers.”
A new round of shutdowns may force some workers to keep working from home or start doing so.
“Any state that is having a serious problem, that state should seriously look at shutting down,” the White House’s top health adviser Dr. Anthony Fauci said Wednesday in a podcast interview with the Wall Street Journal. He urged hard-hit states to close bars and indoor dining, make sure people wear masks and socially distance, and follow federal safety guidelines.
“If you do those simple public health measures, guarantee you’re going to see that curve come down,” Fauci said. “It’s happened time and again in virtually every country that’s done that.”
More than 12 million people have been infected by Covid-19 worldwide, while about 551,000 have died, according to data compiled by Johns Hopkins University. In the United States, more than 3 million people have contracted Covid-19, while almost 133,000 have died.
Many states are now imposing new restrictions and social-distancing guidelines – even going so far, as in New Jersey’s case, as to mandate mask-wearing outdoors — but some lawmakers have rebuked the idea of a second shutdown.
“I supported [the] first “shutdown” to flatten the curve, but we are in a very different place now,” Republican Senator Marco Rubio tweeted Thursday morning. “Must weight cost versus benefit. Social, economic & enforcement costs are significant.”
Rubio’s home state of Florida has seen new cases of Covid-19 surge in recent weeks to more than 10,000 a day.