The Number of Americans Filing For Unemployment Insurance Benefits is Steadily Declining

By | June 9, 2020

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.

Overview

World stocks held their ground near three-month highs as the euro hit the highest level since March 10, thanks to Europe’s stimulus boost, fueling hopes for a global rebound. Investors are pricing in an economic recovery despite data showing severe economic damage wrought by the coronavirus lockdowns. The pan-European STOX 600 index jumped 1.3% on Friday, enjoying the boost from the European Central Bank’s pledge to supply extra cash to its Pandemic emergency purchase program (PEPP). Markets were trashed in March when they hit bear-territory on fears the OVID-19 lockdowns would lead the global economy into a prolonged and deep recession. Market sentiment has been bolstered by central bank stimulus.

Wall Street surged on Friday after a surprisingly upbeat U.S. jobs report raised optimism that the U.S. economy may be heading for a quicker than anticipated recovery. The Dow Jones Industrial Average rose 829.16 points, or 3.15% to 27,110.98. The S&P 500 gained 81.58 points, or 2.62% to 3,193.93. The Nasdaq Composite added 198.27 points, or 2.06% to 9,814.08. The Nasdaq breached its all-time closing reached in February but ended the session below it. The U.S. economy added 2.5 million jobs and the unemployment rate fell to 13.3%. Analysts were expected the unemployment rate to soar to near 20%.

Data this week suggested that the economy hit rock bottom in April and the jobs report suggests a meaningful recovery has begun. Survey data from the ISM suggests the notion that while economic activity continued to contract in May, it did at a slower level as states started to reopen their economies. Most major industries added jobs in May with the exception of the government sector. However, employment is still nearly 13% down from its February peak and 21 million people are still unemployed. The road back may be longer than desired. Auto sales did also surprise on the upside, increasing to an annual rate of 12 million for May, up from 9.0 million in April. The report is a plus for consumer confidence for big-ticket items. It will likely take a year to reach the 17 million mark but it is a step in the right direction.

The number of Americans filing for unemployment insurance benefits is steadily declining. Initial claims fell by 249,000 to 1.877 million in the week ending May 30. Filings for pandemic unemployment assistance also declined, from 1.295 million in the week ending May 23 to 623,000 in the week ending May 30. Continuing claims increased slightly to 21.487 million in the week ending May 23. Jobless claims are on then right track but millions of Americans are still filing for unemployment benefits each week. States reopening their economies will help reduce layoffs and spur some rehiring. However, reopening the economy will not reduce unemployment like turning on a light switch. Spending will take some time to get going but we do expect a gradual upward direction.

Next week, we get a look at the NFIB small business index and PPI and CPI inflation. A lot of eyes will be on the Fed meeting, with concerns over deflation and the successful implications of various Fed stimulus programs.

Latest Data

The U.S. Economy:

Construction spending decreased 2.9% in April after remaining unchanged in March. The decline was driven by a 4.5% contraction in residential outlays. Spending on new single homes fell 6.6% but did remain up 4.5% from a year earlier. Construction spending on new multi-family homes fell 9.1% and was 14.7% below a year earlier. Nonresidential construction spending fell 1.3% and was down 1.1% from April 2019. Public construction spending fell 2.5% but was up 0.8% from a year earlier. Construction spending took tumble in April but did perform better than expectations. Nonresidential investment held up better than expected in March and April but the future does not look good. Businesses have been hurt by shutdown of the economy and the jump in unemployment. Construction put in place is not likely to recover until mid-2021. There is some hope for the residential sector, as low rates and bank lending is not freezing up, like it did in the Great Recession. For those who still have a job, credit is still flowing.

The May ISM manufacturing index improved in May but does remain at a low level. The index rose from 41.5 in April to 43.1 in May. Details showed some improvement. The production index increased from 27.5 to 33.2, the second lowest figure since January 2009, when it was 32.3. Four industries showed an increase in production, including furniture, wood products and food/beverage. New orders increased from 27.1 to 31.8 in May. Of 18 industries, four re0ortedgrowth in new orders. The employment index increased 4.6 points to 32.1. The supply delivery index fell from 76 to 68. Disruption s in the supply chain are causing problems with manufacturers along with current and past closures of nonessential businesses across the U.S. The inventory index rose from 49.7 to 50.4, the first time in 11 months, the index was above the 50 mark. The prices pad index increased from 35.3 to40.8. New export orders edged higher, rising from 35.3 to 39.5. New import orders slipped from 42.7 to 41.3. The index improved in May but several sectors remain at depressed levels. The ISM noted that several factories opened in late-May and that will have a positive impact on June. The ISM changed their methodology on the input weights. Under the old system, the index would have been 37 for May, low but above the record low of 29.4. The index suggests that there is a lot of ground to recover and it is not likely to be quick.

U.S. vehicle sales came back strong in May as states began to reopen. U.S. vehicle sales came in at an annual rate of 12 million in May, up from 9.0 million in April, a record- breaking increase of 35.6%. Still, year-over-year sales decreased by 30.1%. Sales of light trucks increased by 36.1% from April but were still down 23.9% year-over-year. Car sales gained 33.7% from April, but were down 45.2% y/y. The May increase was positive in terms of consumer confidence and spending. However, it remains to be seen if some of the strength was driven by pent-up demand. Still, it was a record-breaking monthly increase. The previous record was in October 2001, just after the terrorist attacks. It may suggest that vehicle sales may reach pre-recessions levels quickly. After 2008-9, it took five years for sales to come back. In all, it was a step in the right direction.

The U.S. non-manufacturing index improved in May, rising from 41.8 to 45.4 but remained below the expansionary 50 mark. The business activity index jumped by 15 percentage points to 41 in May. Agriculture, finance and retail were the only businesses reporting an increase in business activity in May. New orders increased from 32.9 in April to 41.9 in May. Agriculture was the only industry to report an increase in new orders in May. The employment index inched up from 30 in April to 31.8 in May, consistent with a large increase n unemployment in May. The supplier deliveries index fell from 78.3 in April to 67 in May, suggesting slower deliveries during the month. Inventories inched up 1.1 points to 48 in May, with six industries reporting an increase in inventories. The prices paid index rose from 55.1 to 55.6 in May. Anecdotes noted the demand impacts of the pandemic, with declining sales and falling consumer demand. June will likely mark the start of the recover, but with such a large number of unemployed, the future is full of risk.

The trade deficit widened in April as exports fell more than imports. The deficit increased by $7.1 billion to $49.4 billion. Trade volumes plummeted as exports fell 20% and imports fell 14%. Goods exports fell by 25% and service exports dropped 11% as demand for travel and transport services dried up. Auto imports fell by more than half and imports of travel services dropped by more than three-quarters. Real time data shows an improvement in international travel in May, but levels remain depressed from pre-COVID-19 levels. As global economies reopen, international trade will pick up, but the pace of recovery is likely to be slow. Exports will be limited by the weakness in the global economy and imports will be hurt by the big increase in U.S. unemployment.

The May employment report delivered a big surprise. Payrolls increased by 2,509,000 and the unemployment rate fell from 14.7% to 13.3%. Payments for workers through the PPP program may explain some of the increase. Leisure/hospitality led the increase, adding 1.2 million, following a decline of 7.5 million in April. Goods producers added 669,000, with a 464,000 gain in construction, which reversed nearly half of April’s losses. Retailers added 368,000 and other services added 272,000. The one sector that didn’t bounce back was government. Most of the 585,000 loss was in local government education, which lost 310,000 as support workers were sent home Local and state government employment will be under stress unless there is federal help. Average earnings fell by 29 cents as more low paying workers went back to work. Turning to the household survey, employment increased by 3.8 million and the number of unemployed fell by 2 million and the participation rate increased to 60.8% from 60.2%. There may be a spike in unemployment unless the PPP program is extended at the end of July. May was positive, but unless there is more policy investment, the rad back to full employment may be slow.

Important Data Releases This Week

The May NFIB small business optimism report will be released on Tuesday, June at 6:00 AM. The index has held up well despite the economic shock. The headline index, which fell from 104.5 in February to 96.4 in March and 90.9 in April, is still at levels seen in 2012-13. We expect the index to rise to 92 in May.

The May CPI report will be released Wednesday, June 10 at 8:30 AM. The CPI fell 0.8% in April, the largest deflationary reading since the Great Recession. However, the biggest decreases were in gasoline and airfare and car rentals things consumers did not buy much in April.  Gas prices rose in May and other service industries going back to works will likely slow the rate of deflation. We expect the CPI to be unchanged in May.

The May PPI report will be released Thursday, June 11 at 8:30 AM. Producer prices fell 1.3% in April as oil prices crashed. Food prices did advance last month but almost every other commodity fell sharply. The rate of deflation should slow as businesses re-open. We expect the PPI index to fall 0.1% for May.

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Category: Monday Morning Coffee

About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.