Okay, wait. For many of us, it feels like that. Let me start over.
In case you haven't watched or read the news or been on social media for the last several weeks, I have some important information for you:
The news media believes that their job is to scare the bejeebers out of you, make you an anxious wreck, increase your blood pressure, and paralyze you with abject fear.
Yes, it's despicable. It is beneath contempt, and if they were capable of empathy, they would be ashamed. But they're not.
So on Thursday morning, March 26, 2020, in the middle of this coronavirus pandemic and the ensuing government-mandated shutdown of our economy, when they've already made you anxious enough -
They are going to try their best to scare the crap out of you. Don't let them. Read on, and you'll be far more informed than they will ever be.
Every Thursday morning, the U.S. Employment and Training Administration (ETA), a division of the Department of Labor, releases Initial Jobless Claims for the week ended the prior Saturday. So on Thursday, March 26, they will release the number for the week ended Saturday, March 21.
And it's going to be a bad number. The media is going to go into a frenetic Chicken Little dance over it.
Because they have no idea what the number means. It doesn't mean what they think it means. It doesn't mean what you think it means. Let me explain.
Initial Jobless Claims is a point-in-time number. It means something that week, then it means nothing the next week. It is a trend number, in that it is only important in context of the trend. And as the Curmudgeon has long been fond of pointing out, one week doth not a trend make.
The claims number represents the number of Americans who filed for unemployment insurance benefits in a given week. If those Americans are still unemployed the following week, they fall out of the number, because at that point, their claims are no longer initial. Another way to label it is "first-time unemployment filings." And there can only be one first time.
So it isn't cumulative (we have a couple of other numbers to capture that, but more on them later). For perspective, initial claims peaked at 665,000 in March 2009. The record was 695,000 in October 1982. This is incredibly significant - stay with me.
First, as my alter ego has been posting on social media pretty consistently lately, when it comes to statistics, the denominator matters. For example, the number of COVID-19 cases in the U.S. is north of 50,000 - third in the world behind China and Italy. However, dividing the number of cases by a country's population, we find that the number of U.S. cases is .0054%, or 54 per 1 million population. China's is 59 per 1 million, South Korea's is 176 per 1 million, and Italy's, tragically, is 1,144 per 1 million, as of this writing (the evening of March 24).
In the case of initial jobless claims, we have to look at some denominator - either the Civilian Labor Force (those unemployed plus those employed), or the All Employees (Nonfarm) published by the Bureau of Labor Statistics. I prefer the former as it is more comprehensive.
So in March 2009 during the Great Recession, when initial claims peaked at 665,000, the number was 0.43% of the Civilian Labor Force (CLF). And at the peak of 695,000 in October 1982, when the U.S. population was much smaller, that number was .63% of the CLF. Get it? Larger numerator, smaller denominator. (And remember those dates - we'll come back to them.)
Now, that data would tell you that the recession of 1981-1982, which lasted 16 months and saw a trough in GDP growth of -6.69% year-over-year, was worse than the Great Recession of 2007-2009, which lasted 18 months and saw a GDP trough of -8.45%. The unemployment rate peaked in 1982 at 10.8%, vs. 10.0% in 2009.
As someone who lived through both recessions, I can tell you that '81-82 was bad. It was nearly a double-dip recession, coming on the heels of a much shorter and milder downturn in 1980. It was driven by extremely high energy prices, high inflation and high interest rates.
But 2007-09 was worse. It was driven by the most massive housing bubble the U.S., and the rest of the world, have ever seen. The fallout was Armageddon-like. And bubble-driven recessions tend to be more severe and far-reaching than those driven by other factors.
Back to jobless claims, and back to the present. For the week ended Feb. 1, 2020, initial claims totaled 201,000 - the lowest level since Nov. 1969 (when the Curmudgeon was but a lad, not the senior citizen he is today). That's a long time. The upshot is that claims of late have been near all-time historic lows.
So last Thursday, when the ETA reported that claims had increased 70,000, from 211,000 the week before to 281,000, the media's collective hair, real or otherwise, caught fire. At this point, they use their own irrelevant comparisons and misleading numerators to try and scare you, the unwitting:
- "The highest total since September 2017!"
- "The largest one-week jump in claims since 2012!"
- "The largest one-week percentage jump in claims since 1992!"
And the number on Thursday, March 26, 2020 will be worse. Much worse. But again, it doesn't mean what you or they think it means. Here's why.
Back to initial claims being a point-in-time number. For it to have meaning, we'd have to sum weekly initial claims over the entire duration of a downturn. Let's look at the Great Recession.
Because claims fluctuate weekly due to seasonal and other factors, it's hard to pinpoint when they started to rise due to the Great Recession, so we'll just pick the week of Jan. 26, 2008, when claims rose from 321,000 to 366,000 (the Jan. 19 number was the low for 2008, and claims averaged about 321,000 for all of 2007). If we start there, and total claims through the week before they fell back below 366,000 - Feb. 4, 2012 - we get a cumulative total of about 98 million initial claims.
Which is a meaningless number. Why? Well over the four-plus years from Jan. 2008 to Feb. 2012, some people who filed initial claims went back to work. Some may have given up and stopped looking for work, waiting for the job market to improve further, so they didn't qualify to receive benefits anymore.
Fortunately, we have a couple of more meaningful numbers related to unemployment insurance claims: Continued Claims and Weeks Unemployed. Let's look at those.
Continued Claims - also released each week by the ETA - counts those who are past the first week of filing claims for unemployment insurance. It works like this: let's say that on Monday, having lost my job, I file for unemployment insurance for the first time. That gets counted in Initial Jobless Claims for the week ended next Saturday, which will be reported the following Thursday morning. With me so far?
Okay. After that, I will no longer be counted among the initial claims, because, as noted previously, there is only one first time. However, if I remain unemployed and am continuing to file for unemployment insurance benefits, I will now be counted - for the first time - in the Continued Claims data series. And I will continue to be counted in that series until I no longer meet the requirements to file for benefits, or until I stop filing for benefits - in other words, until I stop looking for work, my benefits expire (currently 26 weeks in most states, but that's sure to get extended in the current situation, as it does in every other downturn), I get a job, or I just stop filing for some reason.
Continued Claims peaked at 6.6 million in May 2009, which was a record. But it's far less than the cumulative initial claims during that downturn of 98 million. Far, far, far, FAR less. Because the vast majority of those people had gone back to work. So don't let the Initial Claims number scare you.
Now, as for Weeks Unemployed, or the duration of unemployment. This measures the average number of weeks that those drawing unemployment insurance benefits remain on the rolls. So it is influenced by the extension of benefits by federal or state legislators during a downturn, as well as individual states' baseline benefits expirations. Generally, in a downturn, benefits will be extended, as noted above. This series peaked in July 2011 - more than two years after the end of the Great Recession - at nearly 41 weeks. It was the slowest of the employment data metrics to normalize. It fell to just under 20 weeks in July 2019, which was about where it was in 2005. This speaks to just how ugly the bubble-driven Great Recession was, and how long it took to recover from it. (The baseline trend on this metric has risen over successive downturns, as government increasingly extends benefits, providing a disincentive for people to go back to work for some jobs.)
One other point about Initial Claims - remember when I said we'd get back to the peak dates from 2009 and 1982? The Great Recession ended less than two months after the peak in Initial Claims. And the '82 recession ended within four weeks of that year's peak. In fact, every recession since 1975 has ended within weeks of that downturn's peak in Initial Claims. So if we see a big spike in the next release, and maybe another two or three after that before we hit a peak, you can rest assured the worst is pretty much over, at least for the economy.
So what does all of this mean? First, it means that whatever number we see on Thursday, March 26, 2020, it doesn't tell us much. We need to know how long this thing lasts, and how we recover from it, and that will only be evident in the Continued Claims and Weeks Unemployed data.
Second, we have every reason to expect - not hope - that this time will be different. In most recessions, and especially in bubble-driven recessions, initial claims follow a pattern that, if you graph it, looks like the Matterhorn: they begin rising, they rise sharply, they peak, they begin to decline, and then at some point they level off.
There's a reason for that, and let's use the Great Recession as our lesson. First, the builders who overbuilt, the developers who over-developed, the subprime mortgage lenders who made bad loans, and the title companies who closed those loans, shed jobs. Then, the restaurants those people used to eat at, the bars where they hung out, the hotels where they had their conferences, all saw sharp declines in business, and they laid people off.
Then, those people - who had taken out subprime mortgages - stopped paying on them, and more lenders failed. The Wall Street firms that securitized and bought those mortgages in mass quantities suffered losses. The insurance companies that issued credit guarantees on the bonds that securitized the subprime mortgages ran out of money to insure the losses, and they failed. And all the restaurants, bars, movie theatres, car dealerships, jewelry stores, clothing stores, and every other piece of the economy that depended on those jobs - they all suffered. The second- and third- and fourth-order effects were catastrophic.
This time, there was no asset bubble, so this thing won't develop over time. There will likely be no second- or beyond-order effects. The first few weeks of initial claims numbers should be the worst of it, at least if we get the economy opened back up again in relatively short order (and by that I mean by summer, when seasonality suggests that this thing should have run its course for this year, and we'll just have to see what happens next year - I'm sorry, I'm not one of those doomsday theorists who says this coronavirus will be unlike ANY OTHER the world has ever seen in that it won't be seasonal). In other words, instead of looking like the Matterhorn, with a steep upward slope toward a peak, followed by a steep downward slope back to the norm, it's more likely to look like a cliff - like El Capitan in Yosemite, but with a sharper downward slope like the Matterhorn after the peak is reached.
And why do I believe that the recovery from that peak will be sharp - even sharper, in fact, than the recoveries from the last two recessions?
Again, those recessions were driven by asset bubbles, both of which were fueled by excessive accommodation (read: too-low interest rates) by the Fed - first, the dot-com bubble in 2000-01, driven by the Fed cutting rates in 1998; and the housing bubble of 2007-09, fueled by low rates in response to the dot-com bubble.
Those recessions led to the kind of business failures I noted above. In the dot-com bubble's aftermath, there were far fewer tech firms, because they had overbuilt the tech sector on cheap money, and many of those companies never came back to pick up the slack. In the case of the housing bubble, a lot of those builders and developers never came back, because we had already overbuilt housing capacity relative to demand. The subprime lenders never came back, because we've learned our lesson about subprime lending and we're not going back there - nobody wants to take out the loans, no lender wants to hold the loans, and nobody wants to securitize the loans, or buy the securitized product. Everything else - restaurants, hotels, cruise lines, casinos, retailers - all recovered.
This time, the government, in the interest of saving lives, which is the right thing to focus on, forced those businesses to shut down. This time, there is no moral hazard. This time, the business impact is through no fault of the business sector. The government mandated this, and that's why the government is bailing companies and workers out. True, we must be careful to avoid perverse incentives. But the moral hazard of 2009 isn't there today.
So where does that leave us in terms of the rebound from the effects of this pandemic on our economy?
From my own little corner of the world, my clients have postponed some of my on-site visits, but not much else has changed. We may do things via webex in the interim. But when the dust settles, they will want me on-site again. So I will need plane tickets and hotel rooms and rental cars. I will have to eat out while I'm on the road. Multiply that from my tiny sector of the economy to far larger sectors, and you will see a significant rebound in travel.
Plus, I'm going to want to go on vacation again - aren't you? We already have our next cruise booked. I'm going to want to eat in restaurants, and go to movies, and go to bars (okay, so I don't go to bars much). People are going to want to take their kids to zoos and museums that are closed. Schools are going to re-open, even if not until next year. The Olympics will take place. The NFL, MLB, NBA, NHL and college sports seasons will resume.
The demand is there. Things just have to open back up, which they will in due course. There will be spring after this winter, as there always is.
So the bottom line is, when the media tries to freak you out over Thursday's initial jobless claims number, don't let them. Now, you know better. You know that number better than they do if you've read this far. Godspeed, be safe, be sane, and be calm.
Bonus reading: lest you doubt my assertion that the media pundits don't know jack about economics, consider this:
- Ali Velshi, NBC/MSNBC's senior economic and business correspondent, and formerly CNN's Chief Business Correspondent. Has a degree in ... religious studies.
- Richard Quest, CNN's Business at Large Editor. Has a degree in ... law.
- Kelly Evans, CNBC co-anchor of Power Lunch. Has a degree in ... journalism.
'Nuff said, folks. You stand as good a chance of understanding this stuff as the media does.
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