Jobless Claims Set To Fall Further (Great For Stocks)

Leading Indicators Crash

March leading indicators report showed a 6.7% monthly decline which beat estimates for a 7% decline. If you can believe it, this was the best beat in 8 years. The title of this index being “leading indicators” is laughable now because we have known the 2^nd half of the March economy was terrible for over a month now. 

As you can see from the chart below, the yearly growth rate fell to -6.5%. Weakness was broad based. Negativity came from unemployment insurance and stock prices. Ironically, we could have a better April report even though the economy worsened because the stock market has had a great month. Obviously, the monthly growth will be helped by the easier comp, but I’m referring to yearly growth here.

In the 6 month period ending in March, the leading index fell 6.6%. Coincident index only fell 0.3% in the past 6 months. That means the leading to coincident index ratio is strongly signaling a recession. It would be concerning if it wasn’t for the fact that we already knew a recession is here. In the week of April 11th, the ECRI leading index actually rose 4.5 points to 111.3 because of the rise in the stock market. 

However, the growth rate fell 6.1 points to -42.5%. Like the Conference Board report that I just described, the ECRI coincident index only just started to show weakness. The index fell 3.5 points to 183.9 which sent the growth rate down 3.7 points to -2.4%.

Jobless Claims To Fall Further

Jobless claims have peaked. This is the easiest peak call you’re ever going to see surprisingly. You’d think with the record uncertainty and dispersion in economic estimates that this would be a hard call to make. However, it’s easy because it is literally impossible for that pace to continue. Most of the people who lost their job after the shutdown have already applied for unemployment insurance. And most of the jobs that can pay people to work from home are sustainable.

People left who still need to file are those who haven’t done so yet. They didn’t get a chance to, don’t have the proper information, or haven’t been able to access the state’s services because the website is terrible or doesn’t work. Based on the past 4 weeks of data, about 21% of production and non-supervisory workers have already lost their jobs. How many more of these people can lose their jobs? 

If they haven’t already lost their jobs, it’s probably because it’s sustainable in this shutdown such as the jobs that are called essential. Don’t get me wrong; there will still be more people filing for unemployment in the next report than ever have other than in the past few weeks of this recession. As you can see from the chart below, Google searches for “file for unemployment” have been dropping. It would be shocking if the number of initial claims doesn’t fall over the next several weeks.

When jobless claims are high, stocks do well. It will be interesting to see if this works proportionally. If claims are falling from a record level, do we get a record rally? Normally, that is insane because it’d be tough to have a rally that’s several fold the size of the rallies after the troughs of the previous bear markets. 

However, because of the Fed’s easy policies and the fact that this can be a quick recession if the economy reopens in the next few weeks or months, we could see a record high in stocks this year. Once the economy reopens, many people will get their jobs back. Who else would companies hire? They love people with relevant experience that they don’t need to train.

Record Low Drop In Consumer Comfort

As you can see from the chart below, the Consumer Comfort index has fallen 18.5 points in the past 4 weeks which is by far a record. A great financial crisis looks like a blip on the radar compared to this. Good news is we have already seen nearly a recession sized decline in a few weeks. We are likely more than halfway done with the decline in this index. The stock market’s rise might eventually help confidence. Talks of the economy reopening would definitely help.

This index fell 5.4 points after a record 6.4 point drop in the prior week. Just like jobless claims, this index can’t fall 6.4 points per week. It’s only at 44.5. If it fell 6.4 points every week, it would be at zero in 7 weeks. The lowest it has been in its 34 year history is in the low 20s, so cut that time frame in half. It’s currently the lowest since October 2016. 

Surely, we are in a worse economy than then. Unemployment rate in October 2016 was 4.9%. Technically, it’s at 4.4% now, but we know it will jump to the low double digits in the next report. It will likely be between 12% and 14%.

Within this survey, the economic sentiment index fell 7 points to 37.4. Its 10.6 point drop in the previous month was the biggest decline ever. Buying climate index fell 5.9 points to 37 which is its lowest reading since December 2015. Personal finance index fell 12.1 points to 59.1 which is a 2 year low. 

Comfort is at a 3 year low for Republicans. It’s the lowest since January 2017 for Independents; it’s the lowest since September 2012 for Democrats. That’s since before Trump was elected. If Biden wins, their confidence will go up and GOP confidence will fall. 

The betting market shows there is a 50.1% chance Trump will win and a 43.8% chance Biden will win even though the polls show Biden with a solid lead. Average of recent polls shows Trump’s net job approval is -5.2% and Biden ahead by 5.5 points.