WHAT IS GOING ON WITH THE US LABOR MARKET….. UNEMPLOYMENT, JOBLESS CLAIMS, RE-HIRINGS, ETC.? IS THERE A DISCONNECT? IS THERE ANY REASON TO BE REJOICING THE STATISTICS? I DON’T THINK SO!

First, I’m going to refer you to part of an article that appeared on CNBC on July 1, 2020 (article was updated on July 2, 2020)

Title of that article:

“Stocks rise after better-than-expected jobs report to close out winning week”

“Record jobs gain

Wall Street started the session with sharp gains after the government reported that a record 4.8 million jobs were created in June. Economists were expecting 2.9 million jobs were created. The unemployment rate fell to 11.1% from 13.3% in May. Economists were expecting a rate of 12.4%, according to Dow Jones. 

“Another major surprise here in terms of market expectations,” said Christian Scherrmann, U.S. economist at DWS. “What we’ve seen in May and June is a blueprint for a fast recovery, but only once the virus situation is under control.”

Last month, economists forecast a loss of 8 million jobs in May and the economy gained 2.5 million payrolls instead.

The Labor Department also said, however, that initial jobless claims rose by 1.427 million in the week ending June 27. Economists polled by Dow Jones expected initial U.S. jobless claims to rise by another 1.38 million, down from 1.48 million the week earlier. The data also showed the number of continuing claims — the number of people receiving unemployment benefits for consecutive weeks — rose to 19.29 million, an increase of about 59,000. 

“There’s a disconnect there, when you look at the two numbers,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, referring to the jobs report and the unemployment claims data. “It does show you there is some distortion in the data ... I don’t think the true underlying picture of the labor market will be clear for several months.””

For those of you who want to read the full article that appeared on CNBC, here’s a link to the full article:

https://www.cnbc.com/2020/07/01/stock-market-futures-open-to-close-news.html

Now, my comments:

Beginning in mid-March, we saw the beginning of huge numbers of weekly jobless claims (claims being filed for unemployment compensation.)  Now, through June, we’ve seen huge numbers for 15 straight weeks. 

To the opposite, the Fed Gov is reporting record numbers of hiring, which has reduced the unemployment rate (supposedly.)  Many business “pundits” are saying that these record number of hirings show that the US is swiftly recovering from the dismal unemployment situation.   

I call B.S. on that.

And, I call B.S. on that because of the following.  

Beginning in mid-March, many companies around the U.S. began to layoff workers.  That drove workers to the unemployment office – and it increased the unemployment rate.

Later, Congress passed the Cares Act, which included a provision for PPP Loans.  In order for companies to get their PPP loans FORGIVEN, they have to spend a major portion of their PPP loan proceeds on payroll. This caused companies to rehire employees that they had previously laid off.  Many companies, mind you, did not (and still do not) actually NEED these employees.... because their revenues are below, and, in many cases, still well below, where their revenues were before COVID-19 hit.  So, to me, a lot of the “re-hiring” (the record “job gains” being reported) is artificial.  What do you think is going to happen to those jobs after companies run out of PPP money? They are going to right-size their businesses and cut jobs to match what their operations actually need.

Our economy isn’t going anywhere until we get COVID-19 under control.  It is still out of control throughout most of the country. It hasn’t gone on vacation, it has not agreed to take a break so we can get businesses up and running again, and it is not going to “disappear”.

And, if our economy cannot go back to work, then the question remains, what’s the jobs situation going to be?  If there isn’t a second round of PPP loans, don’t expect companies to keep on their payrolls employees that are not needed.  Most businesses cannot afford to sustain losses for an extended period of time. The unemployment rate is likely to rise again, not continue to go down.