Job Losses Coming In July?

Recovery Tracker Falls

By now you know the economy has been weakening in the past 3 weeks. We saw more evidence of this in the Oxford Economics recovery tracker. As you can see from the chart below, the tracker has fallen in 2 of the past 3 weeks. This index fell 0.4 to 75.6 in the week of June 26th

Since the economy likely weakened further in the first week of July, we might see this index start to accelerate to the downside. 5 of the 6 categories increased, but they all increased less than the prior week.

Healthcare index catalyzed the overall index’s decline as it fell the most since April. That’s a great depiction of how the COVID-19 situation is going. You could categorize the situation as a disaster in most of the south, Arizona, and California. Unfortunately, on Tuesday and Wednesday, national deaths increased. 

There were 994 deaths on Tuesday and 890 deaths on Wednesday as the 7 day moving average increased from 517 on July 6th to 585 on July 8th. Peak in the 3 day moving average was higher than the previous one for the first time since April.

Florida had 9,989 new cases. At this point, the number of new cases per day is so large, it doesn’t even need to increase for it to lead to huge problems. Florida isn’t reporting how many hospitalizations it has had. If they do so in the next few days, prepare for the number to be devastating. 

On a national level, there were 61,848 new cases which was a new record high. The country was led by Texas, Florida, and California as has recently been the trend. Arizona and Georgia have seen spikes as well, but they are small states (population). California and Texas had the biggest increases in deaths sadly.

Household Pulse Survey Looking Bad

Weekly metrics almost all show the economy is getting worse. As you can see from the chart below, the civilian employment household pulse survey shows employment fell 1.3 million in the past 2 weeks. It increased 5.6 million on a non-seasonally adjusted basis between the May and June BLS reference periods. It’s possible that the July labor report shows a decline in jobs. You would think that would cause stocks to decline, but so far, they have done fine.

Thursday jobless claims report will be pivotal in determining the strength of the decline in the labor market. Jobless claims have historically correlated with the stock market. If the streak of declines in claims ends, stocks should fall. There were 1.427 million claims last week; there is expected to be 1.375 million claims in this coming report. 

If this report misses estimates by enough to show an increase, I think it will be viewed as one of the most important reports of the year. This would materialize the weakness we have been seeing in most data points for weeks.

There wouldn’t be a decline in same store sales growth and consumer confidence if the labor market was still strengthening quickly. Even if the trend stayed the same, we would have expected much less job creation in July than June because there are fewer people going back to work. However, a loss would be a whole different story. This would be a very negative headline that shocks algorithms and trigger happy investors looking to take a profit.

MBA Applications Stay Strong

Housing market is still strong. That’s not surprising because interest rates are low. Housing was the first part of the economy to fully recover. It will be the last to show weakness if there is a prolonged shutdown. Obviously, home showings are limited in the states with the worst outbreaks of COVID-19, but the capital is there. People are strongly interested in buying and refinancing.

In the week of July 3rd, the MBA composite index was up 2.2% after falling 1.8%. The purchase index was up 5% after falling 1% and the refinance index was up 0.4% after falling 2%. Yearly growth was amazing as it spiked from 15% to 33%. This type of growth signals all the people who wanted to buy a house in March and April that couldn’t are doing so now. There was pent up demand. 

Obviously, this level of growth won’t continue, but it's still good to see no demand was lost. If anything, the low rates spurred further demand which led to this huge spike. Remember, the period where people couldn’t buy was the spring which is typically the most popular time of the year to buy a house.

Consumer Credit Falls Again

In May, consumer credit fell $18.2 billion after falling $70.2 billion in April. As you can see from the chart below, that was a 5.3% drop, with revolving credit falling 28.6%. The rate of change is improving, but actual debt is still falling. We can expect consumer credit to increase in June since economic activity resumed and there was pent up demand. Data is so old, it doesn’t capture the last strength in the economy before the slowdown.

This report will be pivotal in August because as income decreases because of the decline in unemployment benefits, people may be forced to take out loans. Oddly, one of the only things people wanted to take a loan out for were stocks. This was a weird recession in which people were flushed with cash, had nowhere to spend it, and wanted to take advantage of the dip in stocks.

Conclusion

It seems the recovery is faltering. July labor report might show a contraction in the labor market just as the federal unemployment benefits are about to expire. That would be a terrible situation. Adding to the bad news, new deaths from COVID-19 were elevated on Tuesday and Wednesday. 

Housing market is still extremely strong. Consumer credit contracted again in May, but this time at a lower rate. It wouldn’t be surprising if debt increased in June. We want consumers to take out loans because they are confident and spending. But, it’s a catch 22 because we don’t want people to be forced to borrow money just to pay the bills.  

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