Yesterday’s (13 August 2020) US jobless claims data came in much better than expected.
Initial jobless claims for the week ending Saturday 8 August 2020, fell below the 1m mark for the first time since mid-March (20 weeks ago), with a reading of 963,000, while continuing claims for the week ending Saturday 1 August 2020, fell just over 600,000 to 15.49m (the lowest reading since Saturday 4 April 2020).
As a reminder, initial jobless claims data shows how many Americans have filed an ‘initial’ claim for unemployment benefits during that week. They then have to begin filing a ‘continuing’ claim in order to keep getting benefits for that week of unemployment – and this, by definition, means the data has to be one week behind initial claims.
While we can’t deny that these numbers are high given the reality is nearly 1m Americans lost their job in the first week of August (which is around 5 times the ‘normal’ level we saw before the coronavirus outbreak) and over 15m Americans are still claiming benefits, we do feel vindicated given the majority of economists and market commentators have recently been claiming that both the employment and the economic recovery were starting to reverse – whereas the ongoing downward trend in jobless claims encouragingly confirms to us that the employment market is still recovering. Furthermore, we believe that the US employment market and economy will continue to recover as new coronavirus cases in the US continue to slow, which is allowing US states to restart the lifting of their lockdown restrictions.
We have repeatedly said that although we would suffer a deep and painful recession, it would not be like a normal downturn as this recession has been caused by governments voluntarily shutting their economies (as opposed to central banks tightening monetary policy, or due to financial crisis, like 2008/9) – and as such, the downturn would be short, and thanks to the unprecedented government and central bank stimulus, we would see a sharp economic acceleration on the other side of this horrible coronavirus outbreak (i.e. a V-shaped economic recovery).
However, there are still lots of things for us to be nervous about as ironically, this strong data means the US political stalemate is likely to continue as it takes the pressure off both the Republicans and Democrats to agree a new US fiscal stimulus package to help hard-hit Americans.
As a consequence both the Dow Jones and the S&P 500 indices closed down last night: the Dow Jones fell just over 80 points, or 0.29%, and the S&P 500 ended the day down 0.20%. This, coupled with the UK’s new quarantine rules, has unfortunately hurt the FTSE-100 this morning – and as we write the index is trading just over 140 points lower, or 2.3%, with travel and leisure related stocks among the worst performers.