Harrison: The Reopening Has Stalled

Your Real Vision Daily Briefing for July 16, 2020

Senior editor Ash Bennington joins managing editor Ed Harrison to discuss the latest jobless claims numbers and its particular significance this week.

  • Reports that unemployment numbers were down again today are the result of a distortion of the data; in reality, we saw initial jobless claims rise.
  • If the Pandemic Unemployment Assistance program is allowed to expire at the end of the month, the U.S. could easily fall back into a recession.
  • Stocks like Tesla may be at all-time highs, but banks are preparing for a very tumultuous time ahead.

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The unemployment data released today was reported as positive news, but that’s not what’s going on, Ed Harrison told Real Vision during today’s Daily Briefing.

Harrison said that financial reporters claimed that the numbers were down, but actually, we had a relatively large increase in claims. The discrepancy is tied to seasonally adjusted versus non-seasonally adjusted numbers; a look at the real, non-seasonally adjusted numbers reveals that last week was the first time in three months that we saw initial jobless claims rise.

Doing seasonal adjustment in extraordinary times like these gives you significant distortions of the data, Harrison said. He believes we are at a turning point in which the reopening has stalled and we’re seeing in the real-time data that the rollback is having a negative impact on the economy.

That negative impact could get worse if the Pandemic Unemployment Assistance (PUA) program is allowed to expire at the end of the month, Harrison said. He referenced a JP Morgan study that showed unemployed households increased spending beyond pre-unemployment levels once they started receiving benefits under the program.

That tells him three things, he said. First, if the PUA program ends, the U.S. will fall back into recession and the numbers will roll over and go negative. Second, it says that the marginal propensity to consume is much greater in lower income households. And finally, Harrison said it shows that the massive fiscal deficits are preventing an economic depression.

Of course, the financial economy continues to outperform despite the effects being felt across the real economy. Harrison said this is evident in the earnings reports of U.S. banks. The ones most leveraged to the real economy, the consumer banks, are suffering. Meanwhile, the investment banks, which are leveraged to the financial economy, are doing really well.

With nearly $33 billion in loan loss reserves provisioned across the commercial banking sector – the most since the great financial crisis – it is clear that commercial banks are downbeat about the economy.

Whether the underperformance of the real economy will translate into the financial economy remains to be seen, Harrison said.