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Executive Summary

The good news announced last Friday by the Bureau of Labor Statistics (BLS) was 916,000 new jobs were created during the month of March. The bad news, which seems is being ignored, was 2,876,000 initial unemployment claims were filed during March.  For perspective, on normal initial claims, see the first graph below.  While everyone is optimistic the negative impacts of COVID are waning, the employment picture still has a long way to go to return to pre-COVID employment numbers.  For more on both sides of the employment picture, proceed to the relatively brief missive this week.

Please proceed to The Details.

“Every truth has two sides; it is as well to look at both, before we commit ourselves to either.”
–Aesop

The Details

With 9.7 million working age people unemployed and another 100.5 million who have dropped out of the labor force, it is reasonable to expect large monthly employment gains as the economy reopens from the devastation fomented by the pandemic.  However, it is highly unusual to see first-time unemployment claims continue to exceed monthly new employment to such a large degree.

The good news is, last Friday, the Bureau of Labor Statistics (BLS) announced that 916,000 new jobs were created during the month of March according to the Establishment Survey.  At the same time, initial unemployment claims filed during March totaled 2,876,000.  The historical norm for the sum of weekly first-time unemployment claims totals somewhere between 800,000 and 1,200,000 a month.  Since the start of the pandemic in March 2020, initial unemployment claims have only dropped below the weekly record set during the Great Recession of 695,000, on one occasion.  The week ending March 20 saw first-time claims drop to 658,000, before jumping back to 719,000 last week.

Below is an excerpt from the April 1 News Release from the Department of Labor (DOL) showing there are over 18.2 million individuals receiving some form of unemployment compensation.  The prior year numbers in this table indicate a total of 2.1 million.

The media described March’s employment report as a “blowout” report.  The number of new jobs (916,000) was higher than expected and cause to be cautiously optimistic that more businesses are opening and rehiring workers.  At the same time, the media was relatively silent the day before when weekly initial jobless claims jumped back up over 700,000.  And just to put some perspective into the mix, if future months could consistently sustain the same level of new jobs as March, it would take almost 18 months to bring the unemployment numbers back into the ballpark of pre-pandemic levels.  And that would assume much lower weekly initial unemployment claims, not Great Recession era numbers seen almost every week for over a year.

Upon reopening of the economy, it is expected that more people will be able to return to work.  Due to the massive number of unemployed, it is only reasonable to expect some months to show outsized gains.  Hopefully this will continue, and the economy can return to some semblance of normality.  However, with new COVID strains showing up, and generous unemployment benefits being paid, there are likely to be bumps in the road to recovery.  Anecdotally, I spoke with a restaurant representative who indicated they cannot find people to hire.  Apparently, this is not a one-off situation.  It is well known that many who are drawing regular state unemployment benefits plus the additional COVID-relief unemployment are earning more in unemployment than they can working.  This is posing a problem for many businesses who employ entry-level labor.

There are potentially many obstacles to overcome before the economy returns to pre-pandemic levels.  One dichotomy is how there can be so many first-time unemployment filers at the same time new jobs jump.  Currently, there are two-faces to the employment picture.

The S&P 500 Index closed at 4,020, up 1.1% for the week.  The yield on the 10-year Treasury Note rose to 1.72%.  Oil prices increased to $62 per barrel, and the national average price of gasoline according to AAA rose to $2.87 per gallon.


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© 2020. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.

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