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Bob’s Journal for 6/11

Published on: Jun 11 2020

The U.S. economy entered a recession in February, according to the National Bureau of Economic Research (NBER).

The prior economic expansion had been the longest on record, when using data going back to 1854, as it lasted for 128 months. Economists and investors have long since accepted the NBER’s Business Cycle Dating Committee as the official arbiter of the beginning and end of recessions.

The February start date means that the recession began before businesses were ordered to close by the government and when employment was at record levels. But production was already declining because the pandemic had already caused economic activity to drop in China and other countries. Also, many businesses and individuals were curtailing their activities before receiving the government orders to shut down.

NBER looks at multiple measures of employment and production, as well as income minus government benefits, to make its decision.

The end of the recession will be the point at which the NBER’s data indicate that economic activity stopped contracting. Based on recent data, that point could be coming soon or could have already passed.

This is the fastest that NBER has announced the start of a recession. Usually, the group doesn’t make its official announcement of the start date until months later, after everyone else agrees that a recession had started at some point.

The quick announcement could indicate that NBER economists expect the recession to end soon, though the group doesn’t comment on that issue.

Millions of Small Businesses Disappear

More small businesses in the United States closed their doors over the last three months than during the financial crisis. At least 3.3 million small businesses closed from February through April, according to a paper from the National Bureau of Economic Research.

From the start to the end of the financial crisis, only 730,000 small businesses closed. The NBER authors said there’s no other period in which the loss of small businesses compares to the last three months.

The report also contained a demographic breakdown of the owners of the closed businesses. While all demographic groups suffered sharp losses, black-owned business had the highest percentage of closures at 41%. Overall, 22% of small businesses closed.

Some Recent Quirks in the Stock Market

Stock prices in the United States surged over the last few weeks. Some of the sharpest moves were in stocks that were hurt the most in the downturn and that seemed unlikely to turn around for some time.

Chesapeake Energy (CHK) is a leader in the fracking business. Its stock collapsed with oil prices and the economy earlier this year. CHK declined from a high of $430 last September to a low of $7.70 in mid-May.

The stock surged from about $13.00 early on June 4 to $68.47 on June 8. By the close of June 9, the stock was at $23.85. At the close on June 10, the stock’s price was $18.82.

Hertz Global Holdings (HTZ) also had a wild ride.

HTZ traded at $0.59 on May 26 when the company announced that it would file for bankruptcy reorganization. By June 8 the stock was at $5.40. On Wednesday, it closed at $3.06.

Despite these surges, both stocks show substantial losses for the calendar year and over the course of 12 months. Other beaten-down stocks joined them in big rallies over the last week or two but also remain well below their highs.

Clearly, we entered a speculative phase of this market rally. There are investors who are willing to bet that the economy will return to its previous highs and that the companies which were hurt significantly in the downturn will bounce back.

The Data

Only about 1.5 million new unemployment claims were filed in the latest week. While this figure is historically very high, it is the 10th consecutive week in which the number of claims declined.

Continuing unemployment claims declined a little to 20.9 million. This indicates that the labor market has stabilized and is slowly improving. Before the pandemic, the record for continuing claims was 6.6 million in 2009.

Last Friday’s Employment Situation reports were better than expected. They showed that the number of jobs in the economy increased by 2.51 million in May, which is the largest one-month jump ever. This followed a decline of 20.686 million jobs in April. The April job losses were revised higher from the initial report that was issued last month, as were the March job losses.

Private payrolls increased by more than three million. Several analyses indicated that 10% of the increase in jobs was due to dental offices reopening around the country.

Leisure and hospitality accounted for about half the job gains as some states relaxed their restrictions on business activities.

As I’ve pointed out in the past, I don’t pay a lot of attention to the monthly Employment Situation reports. They depend heavily on estimates and are usually revised in later months, often by significant amounts.

The JOLTS (Job Openings and Labor Turnover Survey) gives a more detailed look at the labor market than the Employment Situation reports, but with a one-month lag.

The latest JOLTS report for April found there were 5.05 million job openings in the United States, the lowest total since December 2014.

There were 3.52 million job hires in April, the lowest monthly amount since the JOLTS report began in 2000 and the first time since early 2010 that the monthly number of hires was below four million.

Also, April had the second highest number of job separations on record at 9.89 million. Only the 14.63 million separations in March was higher. Separations include layoffs, quits, retirements and other reasons why people left their jobs.

Small business owners are more optimistic than expected, according to the Small Business Optimism Index from the National Federation of Independent Business (NFIB). The index increased to 94.4 in May from 90.9 in April. The index had declined a total of 15 points in March and April. Analysts expected the index to increase to only 92.0.

Inflation, as measured by the Consumer Price Index (CPI), decreased by 0.1% in May, following a 0.8% dip in April. For the last 12 months, the CPI is up only 0.1%.

Excluding food and energy, the CPI decreased 0.1% in May (following a 0.4% decline in April) and is up 1.2% over 12 months.

But wholesale inflation increased a little. The Producer Price Index (PPI) rose 0.4% in May, compared to a 1.3% decline in April. During the past 12 months, the PPI declined 0.8%.

Excluding food and energy, the PPI dipped 0.1% in May and increased 0.3% over 12 months.

Applications for mortgages to buy homes continue to surge. The applications have increased for a record eight consecutive weeks. They increased 5.3% in the latest week. The Mortgage Purchase Application Index, compiled by the Mortgage Bankers Association, is now near the 10-year high it set in January.

Consumers became more conservative in April. Consumer credit decreased by 19.5% during the month. Revolving credit, which is mostly credit cards, decreased at an annual rate of 65% for the month. Nonrevolving credit (mostly vehicle and student loans) decreased at an annualized 4% rate.

The Markets

The S&P 500 rose 2.18% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 2.77%. The Russell 2000 increased 0.95%. The All-Country World Index (excluding U.S. stocks) added 1.29%. Emerging market equities edged up 1.85%.

Long-term treasuries rose 0.81% for the week. Investment-grade bonds increased 0.99%. Treasury Inflation-Protected Securities (TIPS) added 0.69%. High-yield bonds fell 0.18%.

In the currency arena, the U.S. dollar lost 1.26%.

Energy-based commodities increased 3.89%. Broader-based commodities rose 2.73%. Gold gained 2.40%.

Bob’s News & Updates

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If you’re interested in my books, check my author’s page.

I’m a senior contributor to the blog. You can view my contributor page here.



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