MANHATTAN (CN) — The steady drop-off in new unemployment claims likely does not paint an accurate picture of just how many people are jobless.
On the heels of a historically bad ADP unemployment report, the Labor Department’s unemployment report showed 3.1 million new claims were filed the week ending May 2, marking a five-week downward trend in new claims.
Several states that had seen spikes in unemployment in the last two weeks have now begun to report fewer new claims. Florida, which had jumped to 433,000 new claims during the week ending April 25, reported only 173,000 new claims last week.
But several experts say the Labor Department’s numbers belie a worsening economy, at least in the short term.
Neel Kashkari, chair of the Minneapolis Federal Reserve, has said he expects total unemployment as high as 24% when the Labor Department releases its monthly jobs report on Friday.
“That bad report tomorrow is actually going to understate how bad the damage has been,” Kashkari said in an interview with NBC. “I think the [unemployment] number tomorrow will probably be something like 16% or 17%. I think the real number is probably around 23% or 24%. It’s devastating.”
Further, while nearly 34 million Americans have filed unemployment claims since mid-March, the Labor Department until recently has not factored in those whom it lumps into the “Pandemic Unemployment Assistance” bucket, which includes self-employed and contractors.
For the week ending May 2, more than 583,000 were lumped into that category, while there were about 780,000 such claims the week in the ending April 25. Since those claims are not seasonally adjusted — there were no coronavirus-related claims to count this time last year — they are not added by the Labor Department to the total new unemployment claims.
Some experts say, even if total new unemployment claims have been going down, the real number investors should watch going into the second half of the year is the total number of continuing claims, as they show whether companies are rehiring those they laid off.
“The market knows that this is what happens when you forcibly shut down an economy,” Peter Boockvar, chief investment officer at Bleakley Financial Group, said in an interview.
He noted that the biggest flood of initial unemployment claims was in the middle of March, when the whole country shut down, and that a more important measure will be when continuing unemployment claims begin to steadily drop, showing that companies have begun to rehire employees.
“I think we should focus more on the trajectory rather than the absolute number,” he said, adding he believes that won’t happen until later this year. “The second quarter to me is lost.”
An overall poor-earnings season also has provided less and less shelter for equities markets, as even once-rock solid companies now feel the pinch during the pandemic.
Although early-morning gains pointed to something better, the Dow Jones Industrial Average on Thursday closed at 23,875 points, a 0.89% increase. The S&P 500 and Nasdaq fared better, gaining 1.15% and 1.4% for the day, respectively.
“The Covid crisis has turned many blue-chip stocks and even entire sectors into ‘stub’ equities,” DataTrek co-founder Nicholas Colas wrote in a Thursday morning note. “Stubs are basically special situations — stocks that require intense analysis before investing, could possibly lose most of their value, but hold out the promise for outside upside.”
The entire energy sector and many retailers listed on the S&P 500 are stub equity groups, Colas wrote, and even larger companies may soon fall into the category. “One might even argue that storied names like Disney ($101 now, $150 six months ago) are inching towards a stub classification,” he wrote.
Retail in particular has been struck hard by the pandemic. On Thursday luxury retailer Neiman Marcus filed Chapter 11, noting that creditors have lent more than $1.3 billion to help the company navigate through bankruptcy to return in the fall.
Fellow retailer J. Crew filed for bankruptcy Monday so it can restructure while its stores are shut down.
Even companies that might be seen as a natural fit for stay-at-home orders have posted distressing results.
Online bank PayPal showed a 12% increase in net revenues but a whopping 87% decrease in net income year over year. The company made only $84 million during the first quarter of 2020 versus the $667 million it made in Q1 2019.
Meal-delivery company GrubHub posted a slight uptick in revenues — $362 million during Q1 2020 compared with $323 million in Q1 2019 — but a $45 million loss in income year over year due to higher expenses.
And Peloton, which markets expensive stationary bikes, saw an appreciable year-over-year increase in its revenue, from $316 million to $524 million, but also a larger drop in income from $38 million to $55 million.
More than 3.8 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and 266,000 have died. In the United States, more than 1.2 million people have contracted the novel coronavirus and 74,000 have died.