Disconnected from reality

The bleeding continues 

New jobless claims for the first week of June came in at 2.24m (including federal and state claims). New jobless claims have decreased meaningfully from the peak weekly rate in April but are still alarmingly high, indicating the bleed from the COVID-19 crisis continues. However, more people are returning to work as continuing claims have fallen to 18.9m, almost 4m lower than the peak a few weeks ago. 

Moral of the story: Officially, over 47m new jobless claims have been filed during the course of this pandemic. Unofficially, employment data, while directionally correct, probably isn’t factually accurate. Many states have experienced significant technical difficulties as their unemployment filing systems have been stressed by volumes they’ve never been built to process. Regardless, unless there’s an error of ~47m in the data, the devastation from the COVID-19 crisis has been…devastating for the economy.  

Price recovery

The cost of goods and services in the US increased in May for the first time in four months. Costs increased most significantly for food and energy, rising 6% and 4.5%, respectively. Stripping out food and energy, prices only increased 0.1% for the month. 

Moral of the story: If we hadn’t seen prices start to recover in May, concerns around continued disinflation would have become more topical in the economic gossip columns. However, inflation isn’t expected to rise in a meaningful way, either, as the low level of inflation we’ve been experiencing for the last few years is expected to continue for the foreseeable future. 

Reality check

Last week I mentioned my concerns about the broader stock market being priced at the same levels as the beginning of the year…pre-COVID. Which is bananas given the insanely high level of unemployment, mounting bankruptcies, mounting debt levels to pay for all the government stimulus, weeks of civil unrest (which also resulted in the destruction of many retail stores that were barely staying afloat given the shelter-in-place orders), recently rising COVID-19 cases, need I continue? Anyway, the market received a rude awakening this week when Fed Chairman Powell expressed similar dovish sentiments about the economy and stocks fell 6% on Thursday. 

Moral of the story: I feel like the market is acting a bit like teenagers must be these days – insanely excited about the fact that things have reopened and blissfully ignorant of the reality that there is, in fact, a difference in the way the world works today. Really lofty unemployment benefits from the CARES Act are running out at the end of July, which, unless replaced, will have a significant impact on consumption. It’s a presidential election year. Flu season returns in the fall, and with it, likely so will COVID-19. I expect the rest of the year will continue to be a bumpy ride as the market comes to terms with reality.