The Mortgage Corner
Initial claims for unemployment benefits fell by just 249K to 2.438 million in seasonally adjusted terms in the week of May 16, as the businesses begin to reopen in all 50 states. The aggregate level of new claims not seasonally adjusted climbed to an actual 4-week high of 4.4 million when applications under federal programs are included.
And more than 38 million workers are now out of a job, at least temporarily, in the latest week’s initial unemployment claims.
However getting them back to work will be far harder than separations, especially if congress cannot agree on another aid package to extend unemployment benefits, Personal Payroll Protection (PPP) to small businesses, and aid to states in addition to the just-passed $3 trillion bill.
Republicans meanwhile are holding up more aid, because they want workers back to work sooner when their current benefits run out, regardless of the still rising infection and death rates in many states.
But what if there are no jobs to come back to? Without more aid, states that hire and pay our essential workers (eg, Police, Fire, and health care workers) will run out money and have to reduce their payrolls. The same also applies to the PPP participants that wish to retain their employees.
Why would Republicans want to “cut off their nose to spite their face,” as the saying goes, after months of fiddling while America burned?
The latest infection data analysis is staggering. If the country had begun locking down cities and limiting social contact on March 1, two weeks earlier than most people started staying home, the vast majority of the nation’s deaths — about 54,000 — would have been avoided, reported Columbia University disease modelers.
And if many essential workers no longer have jobs, especially those workers that keep us safer and healthier, then a real recovery could be years away.
Workers can’t spend what they don’t make, which Roosevelt understood very well during the Great Depression. So he had government create millions of jobs building dams, monuments, energy grids, and planting trees; any work that allowed Americans to continue to feed their families.
And here’s another irony. Republicans support the de facto civil war between red and blue states when a viable recovery will only happen with a united effort, just as we won’t conquer the COVID-19 pandemic without a united effort in testing, contact tracing and quarantining the infected.
We cannot allow the unemployed to remain unemployed for too long. This lessens the demand for producers to produce, which in turn creates more layoffs instead of hires, which lowers Gross Domestic Product (GDP) growth. The Great Recession lasted 18 months, until June 2009 before growth was restored, yet employment didn’t return to prior levels for five years.
The Labor Department (BLS) reported unemployment rates were higher in April in all 50 states and the District of Columbia that were also higher from a year earlier. The national unemployment rate rose by 10.3 percentage points over the month to 14.7 percent as we reported last Friday and was 11.1 points higher than in April 2019.
Three states exceeded a 20 percent unemployment rate already; Nevada, Michigan and Hawaii.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate after inflation) in the second quarter of 2020 is -41.9 percent May 19, up from -42.8 percent on May 15.
Next Thursday’s first estimate of Q2 GDP growth will be the initial indication of just how weak are the job numbers for May. The Labor Department’s unemployment rate won’t be out until June 5. They don’t look good, with estimates as high as a negative -20 percent unemployment rate, or even --25 percent as in the Great Depression.
The powers-that-be must stop their fiddling, in other words, and cooperate in crafting programs that enable workers to get back to work safely, and consumers to shop without the fear of contagion, the same cooperation that’s needed to bring down the death rates from COVID-19.
Harlan Green © 2020
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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