The Weekly Briefing - July 27th, 2020

The Weekly Briefing – July 27th, 2020:

In This Week’s Brief:

  • Initial Unemployment Claims Increase for the First Time in Nearly Four Months
  • Real-Time Data Suggests U.S. Recovery is Losing Steam
  • Second Quarter GDP Almost Certainly Posted a Historic Drop, but How Far?

Initial Unemployment Claims Increase for the First Time in Nearly Four Months

Several states have reimplemented restrictions or paused reopening plans in response to the growing outbreak, leading many businesses to once again close their doors. Accordingly, we are seeing increases in unemployment claims week-over-week. The seasonally adjusted (SA) figure for unemployment claims rose for the first time in 15 weeks, ending a run of consistent declines in a sign that the labor market’s recovery may be wavering. SA initial unemployment applications increased by more than 100,000 to reach 1.4 million during the week ending July 18th as virus case counts continue to grow in many corners of the country. Unadjusted claims fell by almost 10%, but seasonal factors expected a decrease of approximately 16%. Meanwhile, the number of people receiving regular unemployment benefits or pandemic-related assistance continues to hold at approximately 30 million. The lack of improvement in both new and continued unemployment claims indicates many businesses have continued to lay off and furlough workers even as the economy added 7.5 million net new jobs during May and June. Skewing these numbers a fair amount, however, is the lack of reporting on the Pandemic Unemployment Assistance (PUA) figures in Arizona. The state did not report either initial or continued claims during last week’s Unemployment Report. With 2.3 million continuing PUA claims for the week ending Jun 27—or approximately 16% of all PUA claims in the U.S.—the lack of data distorts our view on the current situation in Arizona. Further, over the next several weeks the continued rolling expiration of Paycheck Protection Program loans could put additional pressure on unemployment claim numbers. The program requires small businesses to maintain payrolls for eight weeks to receive emergency government support, and the end of layoff moratoriums could lead business owners to reduce staffing levels in order to cut expenses.

Weekly Initial Unemployment Claims

Real-Time Data Suggests U.S. Recovery is Losing Steam

Beyond the plateauing in unemployment claims, alternative real-time economic indicators are also signaling that the economic recovery is at risk of stalling out after notching strong gains during the month of June.

  • As of mid-July, small-business revenue across the U.S. stood 17% below January averages, basically unchanged from early June, while the share of small businesses that are open has also shown little improvement in recent weeks, according to data provided by Womply on the Economic Tracker.
  • Restaurant reservations have shown minimal improvement since mid-June and remain down more than 60.0% YOY, according to OpenTable.
  • The number of passengers transiting TSA checkpoints has remained at approximately one quarter of 2019 levels for most of July after small but steady growth during the prior two months. The plateau in travel levels is especially concerning for markets that rely heavily on tourism, such as Las Vegas and Orlando, as well as for submarkets dependent on airports as a major source of employment.

TSA Daily Checkpoint Travel Numbers: 2019 vs. 2020

Second Quarter GDP Almost Certainly Posted a Historic Drop, but How Far?

Initial second quarter GDP estimates to be released later this week will confirm that the U.S. experienced a record decrease in economic activity during April through June. After the economy contracted at an annualized rate of 5.0% during the first quarter, various forecasts peg the second quarter decline at more than 30% annualized, which would easily mark the worst quarterly performance since record keeping began in 1947. By comparison, the worst quarterly annualized decline during the Great Recession came in at -8.4% during the end of 2008. As a point of clarification, note that that the annualized GDP figure is calculated using the quarter-over-quarter growth rate raised to the power of four. This means that a 30% annualized decline for Q2 2020 translates to a 8.5% decrease in the size of the U.S. economy from Q1 2020 to Q2 2020.

Second Quarter Annualized GDP Growth Estimates

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