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Unemployment is Much Worse Than it Looks

Summary:
Inquiring minds ponder the discrepancy between the jobs report and Department of labor Unemployment Claims.Jobs Rebound Earlier today I commented by Jobs Rebound by 4.8 Million But Huge Headwinds RemainI question both the strength of the rise in jobs and the decline in the unemployment rate based on claims data and the reference week.Reference Week The household survey week which sets the unemployment rate is the week that contains the 13th of the month. Some claims data released today is for the week ending June 13 but first let's discuss the lead chart. Continued State Unemployment Claims in 2020 Continued claims have shown little improvement for five week. On May 16, continued claims were 20.841 million. There were 19.290 for the week ending June 20 and were 19.231 million on June

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Inquiring minds ponder the discrepancy between the jobs report and Department of labor Unemployment Claims.

Jobs Rebound 

Earlier today I commented by Jobs Rebound by 4.8 Million But Huge Headwinds Remain

I question both the strength of the rise in jobs and the decline in the unemployment rate based on claims data and the reference week.

Reference Week 

The household survey week which sets the unemployment rate is the week that contains the 13th of the month. 

Some claims data released today is for the week ending June 13 but first let's discuss the lead chart. 

Continued State Unemployment Claims in 2020 

Continued claims have shown little improvement for five week. On May 16, continued claims were 20.841 million. There were 19.290 for the week ending June 20 and were 19.231 million on June 13.  

These are seasonally-adjusted numbers, and they rose since last week. 

State claims are the best single reference point. Those claims represent people eligible for unemployment at the state level. 

Primary PUA Claims

Unemployment is Much Worse Than it Looks

When Covid-19 hit various unemployment compensation schemes hit at the Federal level, notably PUA.  

People are eligible for PUA based on lost income and forced part-time work. So not everyone on PUA is technically unemployed, but some are.  

The numbers in boxes pertain to the reference weeks for this jobs report and the last one. 

All Continued Claims 

Unemployment is Much Worse Than it Looks

All Continued Claims include Primary PUA Claims and Emergency PUA Claims plus various Federal programs. 

All Continued Claims and PUA Claims are not seasonally adjusted. 

Total It Up 

It is hard to know how many PUA claims represent people working 0 hours, but the answer is somewhere between 20 million and 30 million. 

Note that All Claims and PUA Claims hit new record highs and both are up since the prior reference week that sets the unemployment rate. 

Unemployment vs Claims in June 13 Reference Week

  • Unemployed: 17.750 Million
  • Continued State Claims: 19.231 Million
  • All Claims: 31.491 Million

The discrepancy between continued state claims and the number of unemployed is 1.481 million.

And that does not count those on PUA who are genuinely unemployed.

Is the difference entirely fraud?

Part-Time Jobs

  • Total Part-Time Work Change: -1,571.000
  • Involuntary Part-Time Work: -1,605,000 - Household Survey
  • Voluntary Part-Time Work: +2,743,000 - Household Survey

Part-Time Jobs Discrepancy

Supposedly, voluntary part-time employment is up by 2.743 million and involuntary part-time employment is down by 1.605 million. 

That nets to an increase in 1.138 million total part-time employment except the BLS says total part-time employment declined by 1.571 million. 

These numbers never net because of how the BLS determines them, but the discrepancy is a whopping 2.709 million. 

Unlike other, I do not believe the BLS does any of this on purpose, but Covid has wrecked many things including the infamous birth-death model and seasonal adjustments.

Birth-Death Model

The Birth Death Model pertains to the birth and death of businesses. In a normal economy more businesses are created than go out of business. The BLS adds or subtracts a net number of jobs based on its models.

I believe the models are now nonsense but I cannot prove it, nor can anyone until we have mass revisions next March. 

My take is that a record number of businesses closed or will close due to Covid-19. Some of those people may have found other work and if so are double-counted. Others were counted when they should not be.

Looking Ahead

State Continued Claims,, PUA Claims, and Total Claims all rose this past week. 

Reopenings In Reverse

Importantly, reopenings are in reverse and that is not reflected in any of this data.

Governors in Washington, California, Florida and Texas have all paused or reversed reopenings. 

Alaska, Arizona, California, Georgia, Idaho, Oklahoma, South Carolina, Tennessee and Texas all reported single-day record levels of new Covid-19 cases on Wednesday. 

Hospitals in some regions are overwhelmed with patients. Expect more reversals. 

The Fed Promotes a Quickening that Takes Many Years

Finally, the Fed openly admitted a Quickening that Takes Many Years

There will not be a V-shaped recovery. Instead the Recovery Will Have Many Shapes, sector by sector.

Mish

Mike Shedlock
Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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