Apple Re-Opens Retail Store In Charleston, SC (Photo by Sean Rayford)
And those great numbers were through Saturday, May 16. Add in all the re-openings occurring since then and the improvement has undoubtedly become even better. Small wonder the stock market is rising.
Understand why the media has it so wrong
Search for “unemployment” and you will see a flood of dire descriptions of the latest unemployment report from all the top news sources. However, they are making two mistakes: Focusing only on initial unemployment claims and using seasonally adjusted (inflated) amounts. Doing so creates these highly misleading headlines:
CNBC’s “but” phrase is the important revelation, but is given subordinate treatment in their list of key points (underlining is mine):
- First-time jobless claims totaled 2.1 million last week, slightly ahead of the 2.05 million Wall Street estimate.
- Continuing claims plunged by nearly 4 million to just over 21 million, probably a clearer representation of the jobless level.
- The high jobless numbers persist even as all states have reopened their economies to various extents.
- Nearly 41 million jobless claims have now been filed since the coronavirus was declared a pandemic.
To understand how to read the data, which means examining continued unemployment claims and non-seasonally adjusted amounts, read my previous article. In it I explain the steps for creating the true unemployment picture, shown on the updated graph below. The red bar shows the positive move.
Unemployment graph showing complete COVID-19 picture
John Tobey (FRB St Louis – FRED)
So, now what?
Today’s situation is undoubtedly significantly better because of the widespread re-opening of businesses, institutions and governments.
What could go wrong?
First and foremost is the possibility that all the re-opening will produce an unacceptably large increase in COVID-19 cases. Such a result could cause a reversal of some re-openings.
There are three reasons that most increases would be acceptable.
- First, in most locations, rules about mask-wearing and social distancing are requirements for re-opening and are being fully endorsed by businesses
- Second, in most locations, new cases have moderated at an acceptable level. With most of the worrisome, rising trends abating, there is likely a willingness to accept a limited rise accompanying the re-openings.
- Third, where there is adequate testing going on, numerical results can be used to judge a change in conditions and provide a leeway for a rise from a lower level. For example, California has an upper 8% limit of concern for counties (meaning the percentage of positives from the testing). San Diego county is currently running at a 3% level.
The bottom line
The U.S. economy is now shifting to an uptrend, with employment being the clear, initial beneficiary. However, the media mistakenly continues to focus on initial unemployment claims, ignoring the previously furloughed and laid off workers that are now returning to work. Looking at the total picture shows a desirable and significant improvement, a trend that almost assuredly will continue.
Next up… Business sales rising, followed by positive earnings and growth.