Claims Dropped Below 1 Million for First Time in 21 Weeks… 963,000 Americans filed for initial jobless claims last week, less than the 1.1 million expected.
What it means— Is it really good news? It’s definitely the right direction, but to have almost one million people filing for unemployment for the first time in August when the pandemic shutdown started in March should be setting off warning bells in Washington, D.C. and on Wall Street. In a typical week before the pandemic, about 200,000 people filed initial jobless claims each week. We’re still in crisis mode.
As for continuing claims, the number of people filing in the state program dropped by 600,000 and the number of federal filers fell by 2.2 million, with the combined total falling from 31.3 million to 28.3 million. Again, it’s the right direction but a far cry from good news.
Many unemployed have been biding their time expecting their former employer to call them back to work. It is not happening in large numbers. Self-employment is the response to generate income working from home. IRS reports a surge in new applications for Employer Identification Numbers, unlike any time since the last recession.
Consumers Prices Up 0.6% for Second Consecutive Month… Headline inflation jumped 0.6% in July, led by higher gasoline prices.
What it means— Core inflation, which strips out food and energy, also rose 0.6% last month. The move leaves headline inflation up 1% over the same time last year and core inflation 1.6.% higher than last year. That’s not quite back to where we were before the pandemic, but it’s getting
closer. Prices for rent, medical care, cars, insurance, and even airline fares all regained their footing last month. It shows that people returned to some level of normal life. On the flip side, food prices fell as we went out to eat and bought less food to cook at home.
Don’t expect prices to move much higher, if at all. Housing costs represent more than 30% of inflation. As we get into the fall and landlords demand that tenants actually pay rent, we should see rising evictions and foreclosures. In New York City, tenants are saving landlords time by just vacating as soon as possible and likely to never return.
At the same time, the federal government is paying lower unemployment bonus benefits. Millions of people without jobs will have less to spend. Those two trends will take a sizable bite out of the economy in the months ahead and keep a lid on inflation.
Whether it is inflation data “rising from the dead” or Fed’s continual assurances that rates will remain low “for as long as it takes,” investors are confused. The 10-year Treasury benchmark rate has risen to 0.70% while gold fell back from its recent high. Our end-of-week “macro risk calculator” suggests Mr. Market’s optimism has ticked up from the past few weeks of concern favoring risk-on positioning.
The third Friday is options expiration day often generating a bullishness that could breach the previous high. To be meaningful, closing above this year’s high must be sustained to initiate another run higher or the current trading range will be extended.
Retail Sales Increased 1.2% in July, Short of 2.1% Expectations…Cars and auto parts dropped 1.2%. Overall, retail sales are 2.7% higher than at this time last year.
What it means— Think laptops. Electronics and appliance store sales shot up 22.9% last month, as parents across the country readied themselves for school to be online. The jump in sales followed a 37.6% gain in June, but even the combined number leaves electronics and appliance store sales 2.8% lower than at this time last year. The same sort of thing is happening in clothing, where sales jumped 5.7% in July after a whopping 98.8% gain in June. Sales are still 20.9% lower than twelve months ago.
Tailored Brands, owner of Men’s Wearhouse reported a 60% drop in sales last quarter and filed for bankruptcy. With 1,400 stores, its 18,000 employees are at risk of job loss. Many other well-known companies are in a similar situation.
The federal unemployment bonus checks are ending in July. With unemployment still in double digits, it seems unlikely that retail sales numbers will improve in August.
Harvard Reports 20% Drop in Matriculation… The prestigious university reported that 340 of the 1,650 students in the rising freshman class have deferred their enrollment. On top of that, 37.5% of the students who normally live on campus have opted out.
What it means— The moves leave Harvard with less tuition and fee revenue and less housing and on-campus spending, such as meal plan revenue. No one is concerned about the survival of the Cambridge, Massachusetts, university because it has a $40 billion endowment and a long list of wealthy alums. What about smaller universities that aren’t so wealthy? Many are facing difficult choices as they try to keep the doors open.
Here’s a suggestion: Get rid of a large proportion of university administrators and require tenured professors to actually teach real American history, civics, math and English instead of fabricated social dogma.
Next Week—The third week of August includes reports on housing starts and existing home sales, and we’ll also get the minutes from the last Federal Reserve meeting.
Data supplied by HS Dent Research
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