Today’s unemployment report was hailed as a victory, but the only way it looks good is in comparison to the few months preceding it. According to the Bureau of Labor Statistics, 1.184 million Americans lost jobs this last week.
Now, this number is down from the peak of 6 million jobs lost in late March and early May, but it’s still one of the worst weeks for unemployment in American economic history. Prior to the coronavirus crash, the largest disruptions in the U.S. economy typically cost 2 or 2.5 million jobs lost – per month! The 2009 crash, referred to often as the “Great Recession,” peaked with 2.6 million jobs lost in a one-month stretch. We’re currently closer to 6 million in the last month, and this month has dramatically improved from the one before it.
Markets react positively
Despite the 16 million currently unemployed Americans and despite the massive revenue and profit losses reported over the last two weeks, the stock market is doing just fine. In fact, the S&P500 is approaching a record high while the Nasdaq just hit its 31st record high close this year.
To an extent, this makes some sense. Tech stocks have generally done better than shares in companies that require physical interaction.
But the price earnings ratio is back in to extreme bubble territory. While the average P/E of the last few decades is around 15 or 16, the current NASDAQ number is closer to 40. That’s right: if you bought $X worth of NASDAQ shares right now, it would take about 40 years for those companies to earn back the money you’ve invested. Of course, if they continue to grow, it will be a bit quicker than that, but what space are they expected to grow in to?
Federal benefits expiring
This week is also the end of the additional $600 unemployment supplement provided by the federal government. Up until now, those 16 million unemployed Americans had an additional benefit padding the loss of their job – and the lack of alternative employment opportunities.
The additional funding has been a major boost to state unemployment programs that provide very little. Florida’s unemployment payments, for example, are capped at $275 per week – regardless of how much the employee was originally making. With average weekly wages in the state around $600 to $800 per week, that benefit is just a small drop in the bucket compared to the bills and obligations those people have.
The music keeps playing
Imagine a game of musical chairs where 16 million seats were suddenly removed. But the song hasn’t stopped yet, so no one is crying.
Now imagine everyone has concluded that because the song hasn’t stopped yet, it will probably never end.
Never mind that Congress just put their hand on the plug, and they’re about to pull it.