Home > Initial Jobless Claims Back Above the 1 Million Mark

Initial Jobless Claims Back Above the 1 Million Mark

August 21, 2020 By Mircea Vasiu

One of the effects the pandemic had on financial markets is that it transformed the way investors interpret economic data. Suddenly, the focus shifted from monthly data to weekly, as the need to react quickly is more acute.

Such is the case with the initial jobless claims in the United States. Viewed as second-tier, or even third-tier data in the past, it became the primary measure of how the pandemic affects the economy. In pre-pandemic times, the market rarely cared about deviations from the expected number. Nowadays, news that yet another million people applied for unemployment benefits in just one week reveals the hardship behind the crisis.

Labor Market Recovery Stalls

Almost thirty million people in the United States still collect some form of unemployment insurance. For the previous week, the market expected another 930k people to apply for unemployment benefits, but the true number exceeded 1.1 million.

The job market is generally viewed as a lagging indicator in the business cycle theory. In other words, it lags the economic recovery or the economic contraction. Because companies are reluctant to hire new employees in an economic upturn, the indicator lags. That is normal behaviour.

One way to better interpret such an indicator is to check the overtime hours. Before hiring new people, companies tend to overwork their employees. That is especially true in the United States when overtime hours rising steadily signal a recovery in the job market, thus reducing the lag.

The data out of the U.S. job market is important because it acts as a benchmark for the rest of the world. As this pandemic generated a global economic recession, a similar impact is expected all over the world.

The U.S. data shows that some sectors have been hit harder than others during the COVID-19 pandemic. Hospitality and tourism took the biggest hit. Is this something specific to the United States only? Certainly not.

In Europe, Spain and Italy saw their tourism industry being decimated. Tourist arrivals in Japan and Hong Kong literally dropped to zero. Hence, there is a consistency when interpreting data from one part of the world to form an opinion about other economies too.

Coming back to the U.S. labour market, yesterday’s data confirms the sluggish recovery ahead. There is a long way until the labour market can claim the pre-pandemic levels.