Contributor: Stephen J. Douglass
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Progress
As we have been saying, the seasonal adjustment process for initial jobless claims has been wholly inappropriate given the scale of job losses during the pandemic. Because the process is multiplicative rather than additive, the adjustment factor has now inflated the actual claims numbers by over 4.6 million since March, grossly exaggerating the true magnitude…
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Seasonally Maladjusted: How Statistical Methods Have Destroyed 3.7 Million Jobs Since March
In this short note we demonstrate, primarily using a few examples and data points, how totally inappropriate it is to seasonally adjust initial unemployment claims during the pandemic and how doing so can lead to very misrepresentative “headline prints.” Why seasonally adjust claims? The purpose of seasonal adjusting is to remove distortions that result from…
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Labor Market Update: Objects in Mirror are Better than They Appear
The labor market continued its spectacular recovery in June. The jobs report released on Friday reflected a net gain of 4.8 million jobs, almost double the increase from May. The monthly change in nonfarm payrolls has set a record in each of the last four months: two record decreases followed by two record increases. The…
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A 10 Million Job Surprise
The May jobs report produced the biggest surprise we have ever seen from an economic data release. Nonfarm payroll employment increased by 2.5 million in the month, a full 10 million jobs higher than the Bloomberg median forecast for a loss of 7.5 million jobs. Not a single one of the 78 economists surveyed by…
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The Fed’s Crisis Playbook: Speak Softly and Carry an Unlimited Balance Sheet
COVID-19 has delivered an economic shock of unprecedented speed and severity. The Federal Reserve under Chairman Powell has responded with the most aggressive policy action in the central bank’s 107-year history. As well as cutting the policy rate to essentially zero and offering nearly unlimited repo financing, the Fed commenced on March 13, an asset…
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A Recession Unlike any Other
The longest expansion in U.S. economic history ended in February. March ushered in a recession that will be unlike any other we have seen before. In the last five weeks, 26 million workers have filed for unemployment insurance. That’s more than the total number of jobs that were created in the entire decade-long expansion. The…
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Treasury Yields: How Low Can They Go?
This has been a frequent question from clients in the past week as the spike in cross-asset volatility sent Treasury yields plunging to record lows. The shortest and most accurate answer is: nobody knows. Just as nobody could have predicted that a novel strain of an otherwise common virus would be the catalyst, or that…
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Coronavirus Fear Shocks Global Markets
Coronavirus has sent shockwaves throughout global financial markets. Since mid-February major global equity indices are down by 10-20%, investment grade US dollar credit spreads have widened by 30-50 basis points, and US Treasury yields have plummeted to all-time lows. The driving force behind this market turmoil is fear of the unknown. Nobody can predict how…
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State of the US Consumer in Four Charts
With no shortage of economic uncertainty in the world, it is natural to ask whether the US consumer can continue as the primary engine driving the expansion. Our answer to that question is yes. You’ve no doubt seen many of the well-known statistics describing today’s exceptionally strong labor market. The unemployment rate is at a…
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FAQ: What Happened in the Repo Market Last Month?
A volatile September in the normally placid money markets inspired a number of client inquiries, and a few overzealous headline writers in the financial press. In this note we will review what happened, explain why we think it is more likely a technical disruption rather than an indication of broader stress in the financial system,…