Survivor’s euphoria, but then what? Reopening momentum, though would that be enough on its own? More of a concern, the uptrend was heavily infused by government intervention. How much was organic, how much wastefully artificial (in the sense of “stimulus”; as economic aid, it was necessary)?
So many questions, so much to try and sort out as we enter the all-important Q4. The second quarter broke downside records and introduced really the only thing that will matter. With tens of millions thrown out of work, does everyone get to go back? Just as important, how soon might they?
Time is rapidly becoming the more important number to keep in mind.
This year’s third quarter wasn’t going to be able to answer those questions. Gigantic positives were certainly plentiful during it, the natural reaction from coming off the bottom mixed with non-economic factors like reopening. These, however, merely obscured the true underlying economic condition.
Again, there are, essentially, two labor pools (first is those who have been prevented from working by restrictions, but are now going back to it) are out there and we really don’t know have a good enough idea how large the more important second one (those who have no work to go back to) remains.
Complications were baked into this from the very start, not that you’d know it from all the “V’s.” I’m not talking about COVID and local government variations on their overreactions, either. What might prevent recovery, even just slow it down too much, was always going to be of pure fiscal reality.
The dangers were amplified by GFC2; this put companies already reeling into survival mode. Conserve cash and liquidity by any means. Take the government’s handouts, draw down every bank line of credit in sight, but keep an eye on the date those things, and momentum, expire. At that time, it would be do or die; back to normal if the “V” looked anywhere close to promising, or the dreaded second round of labor bloodletting if questions linger.
We aren’t quite there yet, but it does seem uncomfortably close. That’s a huge warning sign because it shouldn’t even be ambiguous this far into what “they” all said was as easy as flipping a switch and turning the economy right back on again. That part of the narrative, at least, has faded.
Forget the Presidential election, jobless claims and now other labor data. More and more labor data. These are what’s going on in with bond yields, the dollar’s firmness, and once again commodities (sorry, Jay; sorry, Zambia). This kind of thing which, if there actually had been a “V”, wouldn’t be so prominent after months of reopening.
First, ADP yesterday reported another lackluster, post-June increase. The number in historical context was huge, of course, +750k in private payrolls. More recent context, however, you easily appreciate how concerning even this huge number is given the scale of the remaining jobs deficit.
We’ll see what the BLS says tomorrow.
And now this to start off October with more negatives from September:
“We are setting new records for job cuts even though things have improved since the earliest days of the pandemic,” said Andrew Challenger, senior vice president at Challenger, Gray.
The rise in layoffs comes as companies have burned through government loans to help with wages. Funding for a reduced subsidy for the unemployed is also close to running out.
That’s not even the worst part; job cuts are spreading beyond the direct line of COVID numbness. Challenger also said that industries outside of retail or entertainment are coming up in their surveys. According to Reuters, “The aerospace/defense announced 18,971 layoffs last month. There were 16,628 cuts in the transportation sector.”
This gross uncertainty in labor (because of demand and liquidity fears) explains yet again why spending overall (demand) has remained significantly less than February even after such a massive amount of government aid (again, permanent income hypothesis).
According to the BEA, data released today for the month of August, total income, while coming down, continues to be significantly higher than before March. That’s entirely due to all sorts of programs (though aid that is more and more winding down, leaving the jobless to view an aidless as well as jobless future situation).
The income deficit, because of the jobs deficit, however, is still enormous. Putting it into context, the level of Real Disposable Personal Income excluding Transfer Receipts during August, data released today, was again more than 4% below February’s estimate. That’s Great “Recession” level of income deficiency.
Rather than follow government aid (orange line above), spending (green dotted line) has been more like private income (red line).
The time factor. Gigantic positives or not, they just aren’t near gigantic enough. Because of this, there is widespread uncertainty even a little fear trending of late in markets and, as we’ll likely see with more September data, also the real economy.
That next shoe still hangs in the balance. It doesn’t seem as if it was so easy to turn everything back on. Unnecessary recession, unnecessary hindrance to recovery (GFC2). But it’s not like this is anything new. A “V” would have been unusual. “L’s” are what we economies do in this side of the eurodollar divide.
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