Job Postings Improve
As you know, the initial jobless claims reading was poor last week. It didn’t include California data, but the rest of the country was weak. We should get the California data in the next 1-2 weeks. Initial claims report this week is expected to show an additional 865,000 claims which is just below the spike to 898,000 in last week’s report.
We are in an intermediate term slowdown where the data isn’t improving. Pay no mind to the huge steady decline in continued claims because that’s just people switching to pandemic benefits. Pandemic benefits data comes out a week after continued claims, so it’s 2 weeks delayed.
We don’t know for sure if each week’s decline in continued claims is because of the shift to pandemic claims, but the timing lines up and each old data point supports this. If PEUCs don’t rise in this week’s report, my assumption will be checked.
Despite these weak results, we got encouraging news from Indeed. As you can see from the chart above, job postings continued to improve which brought us to -15% yearly growth. We are a few months away from lapping easier comps, but that’s irrelevant. Goal is to improve the economy, not be better than the worst of the recession.
“Driving” job postings are up 17.4% which is a 5.5% improvement from 2 weeks prior. We can see this playing out in FedEx stock. The stock has increased 16% in the past month because of the spike in online orders. Worst area is of course hospitality and tourism which is taking a beating.
Even if there is a modest recovery in flying, the length of the recession in this industry is weighing more heavily on these firms. Even the best capitalized hotels can’t deal with several quarters of a bigger decline in bookings than during the financial crisis. This is an unmitigated disaster.
Another Week Of Good Housing Data
MBA housing data fell on a weekly basis, but rose strong on a yearly basis. Specifically, in the week of October 16th composite index growth was -0.6% following a 0.7% decline. This was driven by declines in the purchase index which fell 2% in the past 2 weeks. The refinance index grew 0.2% after falling 0.3%.
As you can see from the chart below, the 4 week moving average has been negative for 3 weeks. However, yearly growth is still fantastic. Yearly growth has been in the 20s for the past 4 weeks as it was 26% this past week.
A difference between weekly and yearly growth is occurring because we had a later selling season because of the pandemic. The sales in March that would have occurred were pushed back. That’s why coming off the peak of the season still has high yearly growth. Normally, the peak would have been earlier in the year.
Brutal Time To Be A Restauranter
As the weather gets colder and COVID-19 cases ramp up, restaurants are facing a tough winter. At the exact moment when they needed to have more indoor dining, they can’t because of the latest spike in cases.
As you can see from the chart below, there have been 15,770 permanent restaurant closures since March 1st. If COVID-19 causes more restrictions on indoor dining this winter we could be looking at most of the 10,390 temporary closures turning permanent. Interestingly, there haven’t been many public company retail bankruptcies. Most of the closures you see below are from independent stores.
Prior to this recession, economists were worried about the rise of monopolies. That trend has been ratcheted up 10 fold with this virus because it’s tough for small firms to get a bank loan, but it’s easy to raise money via the public debt market or issuing equity.
Even AMC, which was in bad shape before this virus, will stay afloat because it can issue more shares. The company would probably go bust in 3-6 months without this cash infusion.
Fed’s Beige Book
Fed’s October Beige Book stated the Fed sees the economy growing at a “slight to modest” pace. That’s ironic because the Atlanta Fed’s GDP Nowcast expects 35.3% GDP growth in Q3. Obviously, that’s because of a weak comp. It does seem like the economy could be slowing in October in spite of the great September retail sales report. The stock market has peaked, but it’s not exactly in a bear market either.
In this report, the Fed mentioned the COVID-19 outbreak 41 times which was the lowest ever and a steep decline from September. I don’t think that means it is suddenly taking it lightly though. It didn’t mention tariffs and hardly mentioned trade. Uncertainty was used almost the same number of times as last month. As you can see from the chart below, the Beige Book activity index further rebounded, but it’s still below pre-recession levels.
COVID-19 Is A Major Issue In The Midwest
The virus is out of control in the Midwest as there were 57,294 new cases nationally; hospitalizations spiked to 40,271. Even deaths are starting to increase again as there were 994, which pushed the 7 day average up to 757. The only good news is there were fewer COVID-19 cases in Wisconsin than Tuesday. New cases fell from 4,591 to 4,205.
As you can see from the chart above, there still aren’t many patients in the ICU in New Jersey. The claims that the virus is getting worse in the hardest hit states are exaggerated for now. A 3rd wave is all about the Midwest. We're all curious if this is the last wave because each major region has now dealt with a wave.
We got bad news on therapeutics this week as the FDA gave Eli-Lilly a violation because data on various manufacturing processes were deleted and not appropriately audited in a November 2019 inspection. This caused the firm to hire an independent consultant to review the plant in question which happens to produce its COVID-19 antibody drug. This could hurt its ability to get emergency authorization for the COVID-19 drug.
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