The U.S. Dept of Labor has released the unemployment claim data [DATA HERE], and the results show claims of 286,000 last week: an increase of 55,000 from prior week and the third consecutive week of increased claims.
As we have continued to point out from data, in part due to the vaccine mandate, and in part due to the underlying economic issues created by the Biden administration, the working class economy has bifurcated and cleaved. The trendline is negative.
Ask yourself, where are these current claimants going to gain future jobs when the inflationary pressure is contracting consumer demand?
WASHINGTON (AP) — The number of Americans applying for unemployment benefits rose to the highest level in three months as the fast-spreading omicron variant disrupted the job market.
Jobless claims rose for the third straight week — by 55,000 to 286,000, highest since mid-October, the Labor Department reported Thursday. The four-week average of claims, which smooths out weekly volatility, rose by 20,000 to 231,000, highest since late November.
A surge in COVID-19 cases has set back what had been a strong comeback from last year’s short but devastating coronavirus recession. Jobless claims, a proxy for layoffs, had fallen mostly steadily for about a year and late last year dipped below the pre-pandemic average of around 220,000 a week.
Altogether, 1.6 million people were collecting jobless aid the week that ended Jan. 8.
Companies are hanging on to workers they have at a time when it’s difficult to find replacements. Employers posted 10.6 million job openings in November, the fifth-highest monthly total in records going back to 2000. (read more)
The highest insured unemployment rates in the week ending January 1 were in Alaska (3.1), Minnesota (2.8), Kentucky (2.7), New Jersey (2.6), New York (2.6), Rhode Island (2.5), California (2.4), Connecticut (2.4), Massachusetts (2.3), and Oregon (2.3).
The largest increases in initial claims for the week ending January 8 were in California (+11,295), New York (+10,639), Texas (+10,437), Kentucky (+8,476), and Missouri (+7,768).
While there is still inflationary pressure to jump jobs in order to capture higher wages in many sectors of the economy, the manufacturing sector is becoming more unstable. I believe demand is contracting. Remember, productivity in the third quarter (June, July, August) was -5.2%.
PRIOR WARNING – The value of all products and services generated in the third quarter increased by 1.8 percent. However, the labor cost of generating that small amount of added value increased by 7.4 percent. The difference between those two numbers is a drop in productivity of 5.2% over the entire quarter.
This was the largest quarterly drop in productivity since 1960 !
The Biden administration will blame the drop in productivity on a lack of material to produce the end product (ie. the COVID excuse). Which means employed people were sitting around waiting for goods to arrive and being less productive. There is a small amount of that which might be true. However, it is not the biggest factor, at least not on this scale. Keep in mind we are talking about both goods and services.
The more likely cause of such a massive decline in productivity is a genuine decline in demand. In the aggregate, consumers needed less goods and services. This likelihood aligns with the diminished and softened retail sales figures recently noted. It is a simple cause and effect. When gasoline, energy, and essential products like food cost more, consumers have less money for other stuff. Demand for the non-essential products drop.
As the demand drops, the productivity of the economic activity to generate those goods and services also drops. However, the scale of the decline is the part to pay attention to. A five percent drop in productivity is huge for a single quarter. Under normal circumstances, this means more slack in the labor market, and that is what we saw recently in the retail sector of the employment figures from November {data here}.
During the month when retailers are customarily ramping up their employment to cope with increases in consumer demand, last month that didn’t happen. The ‘retail sector‘ lost 20,000 jobs in November. Think about that.
At the time of the November jobs report, the “national economists” were trying to figure out why the employment report missed expectations by 300,000+ jobs. We were not so surprised, because the actual result aligned with other data suggesting the Q3 economy overall was contracting. Consumers are being squeezed by inflation, that is creating a stagnant economy or “stagflation.”
Wage growth is currently at 3.9% {data}, and when combined with the loss in productivity, the unit labor costs for businesses at a macro level means a total cost of +9.6 percent in the third quarter. If employers do not start reducing their payroll costs as demand contracts, each unit produced will cost more money. Unfortunately, that dynamic adds to inflation, and we grease the skids on this downward spiral.
I have not seen any financial pundits concerned about where this cycle naturally ends. Perhaps the media silence is because the White House knew the Q3 productivity data was alarming, and that stirred the administration to contact those pundits in advance in an effort to avoid widespread notice.
Regardless of reason for their avoidance, a drop in productivity of such a scale tells us to complete our economic preparations as soon as possible. The intensity of the inflation storm worsens with a weak employment outlook.
THAT warning was in early December. We are now settling down from the holiday data skews. Now look where we are.
Folks, we are in the center of an economic mess of FUBAR proportions. All prices are rising, the supply chain is a tenuous mess and getting worse, supplies of critical goods are now shrinking, wage increases are insignificant when compared to inflation, and the Federal Reserve is about to start raising interest rates…. it’s the perfect storm.
