Thursday, April 02, 2020

Yuuuuge, Amazing, Beautiful Jobless Claims

I imagine overhearing that in the White House today. 

"Biggest number ever!  10 times larger than Reagan's number. Amazing. Why even have an election, everyone wants me to keep this up, right?"

VP Pence then bends down to whisper "Umm, jobLESS claims means that people are out of work, so a big number isn't really a good thing..."



Last week I mentioned that when jobless claims came in at 3.3 million, that it was likely just the tip of the iceberg and that this week would likely be much worse.  Most economists did not agree with me as the consensus was for job losses to come in at "just" 3.5 million (which would still be another record). 

Shockingly, the insiders at Goldman had an outlier estimate of 6.0 million losses (boy, it's almost like someone inside the government - Mnuchin - is privately texting them information.....).  This should make everyone take note of Goldman's estimate for Q2 GDP decline of 34%.

Anyway, the final number was just announced - 6.6 million jobs lost last week.  Again, these are just numbers so here is some context:

1) The previous high for jobless losses was 665,000 in 1982.  Today's number was ten times as large!

2) That's 10 million jobs lost in 2 weeks.  During the entirety of the great recession in 2008-2009 we lost 8.7 million jobs.

It is important to note that many of these job losses are first derivative losses from businesses being shutdown - retail, hotels, restaurants - so while these are huge numbers it is possible that many of these jobs would come back fairly quickly when the world reopens for business.

However, the troubling part is that the longer things stay shutdown, the more likely companies are going to start laying of more permanent workers.  This second derivative wave of job losses will be more painful for the economy because the average wage of a software engineer, accountant or architect is 5-10 times that of a restaurant worker, so the loss of these jobs will drastically reduce spending in the economy and GDP further.  Yes, stocks have fallen from their all-time highs but they are actually only down about 10% from this time last year.  The downside risks right now are so significant that I don't think people are adequately prepared for what could lie ahead.

The market's reaction this morning was very odd.  Stocks were up universally, 1-2% across the board in the US and after the horrific jobs data they stayed elevated.  I'm not sure if people were confused or hoping that it would prompt another Fed panic move or what, but stocks stayed much higher for about 4 minutes before falling back to flat. 

Who knows what today brings---I would guess that every fantasy spending bill that Congress has dreamed about will get traction for the next round of bailout bills.  Green New Deal, Medicare for All?  Those would be cheap compared to what Congress will probably dream up.

The problem is that no amount of fake spending and liquidity can fix what ails our economy right now.  We need to reopen our economy but we can't do that without  the risk of killing maybe 1-3 million fellow citizens.

Right now we have 12 million people in the US over the age of 80.  If they represent the bulk of fatalities from COVID19 it would mean 1 out of 4 will die if we went back to a free economy.  Think about the first 4 people you know over the age of 80 and understand that it's likely one of them will die if we go back to work. 

These are not easy choices.

Not that anyone asked but here's my plan and I'm not an infectious disease expert but I play one on the internet -

Shut everything in the US down.  I mean everything - institute quasi martial law for the whole country. If you are out driving you need to be a doctor or a nurse going to work, otherwise you are going to jail.  No groceries, no gas, no going for a run (hey, I'm guilty of this every day), nothing.  Stay home or go to jail.

Do this for 30 days and on May 2, we re-open for business. 

The alternative is that we will be dealing with this in July and our economy will be heading into the Great Depression part 2.  I'm not trying to be hyperbolic, but we need some hyperbole to get the attention of leadership.  These are historic times that people are treating like it's just another blip on the radar.

As my friend says - Airport drinking rules are in effect so cheers!

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