US Initial Jobless Claims Preview: Priced in disaster

Americans continued to be laid off from their jobs at a record pace as the shutdown of commercial life reaches further and further into labor market spreading disruption throughout the US economy.

Initial unemployment claims are expected to be 3 million in the week of May 1 raising the total to over 33 million in seven weeks.  Continuing claims are projected to climb to 19.905 million from 17.992 million.

Initial jobless claims

Initial claims peaked in the second week of the pandemic layoffs, March 27, at 6.867 million and have declined with each new release. This week would represent a 56% decrease from that top and a total of 20.2% of the US labor force now receiving government unemployment insurance.  

During the financial crisis of a decade ago the highest weekly number of people filing for jobless benefits was 665,000 on March 28, 2009. The highest total for continuing claims was 6.635 million on May 30, 2009. Until this year both were the records for unemployment claims.

Market reactions

The shocks of those early claims numbers have ceased. Indeed the labor market debacle has become somewhat old news, witness the market reactions to the expected ADP April loss of 20 million jobs on Wednesday.

Currencies barely stirred, the Dow futures were 160 points higher just before the 9:30 trading open and the 10-year Treasury yield had gained 7 basis points.

Labor market future

Several states including Texas, Florida, Georgia and California have begun to lift restrictions on businesses though maintaining most social distancing strictures.  The most pressing question for labor markets is how many and how quickly workers will be called back to their jobs by their employers.

Much will depend on the consumer and how fast demand returns. Has people’s willingness to sit for a haircut or socialize at a bar been damaged by the incessant crisis coverage media?  It will take a few weeks at least until the initial response is available.

The temporary nature of the layoffs was noted in statistics from California where firms with at least 75 workers said only 7% of their firings were considered permanent. Similar results from Colorado and Washington showed that 75% of their 23,400 layoffs were considered temporary at the time of separation.  

Seven weeks into the economic debacle those expectations have likely been reduced to the hope, if business comes back workers will be rehired.

In this singular situation the ability of the millions of small businesses to reopen is unknown.

Many of the laid off workers were in the service sector. Most restaurant and bar owners will attempt to restart their businesses but for them and many social venues, customers may return too slowly to rescue these cash-flow dependent businesses.

Conclusion: Pricing disaster

While the collapse of employment in the US is an economic and personal tragedy it has ceased to be a market one. 

The labor market disaster, specifically jobless claims have largely been absorbed into price levels and, barring surprises, equities, currencies and bonds are focused on the future. When and if the economy begins to show signs of the long road back to normality is more telling than the latest insurance figures.

This Friday’s US non-farm payrolls will test the thesis whether 20 million lost jobs in a month can truly be priced into markets.  The plunge in ADP payrolls by the same number produced no market reaction, but NFP is a market favorite, the premier American economic statistic. 

On this we will have to wait and see.