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Opening Statement from the June 2020 Dividend Gems

Originally published on June 14, 2020

U.S. Employment Data: On April 12 (April 2020 Intelligent Investor) we released a formal estimate of 35 million (minimum) and 50 million (worst-case) job losses due to the COVID-19 hysteria. As of the most recent initial jobless claims data (week ending June 6) the U.S. has lost another 1.54 million jobs (versus 1.9 million the previous week) for a total of 44.2 million jobs lost over the past eleven weeks.

In only two months, the U.S. unemployment rate (U-3) which had been the lowest in more than 40 years soared to the highest rate on record at 14.7%. In April, the U.S. recorded its largest one month increase in the unemployment rate in history (from 4.4% to 14.7%) as well as the highest rate since 1948 when the U.S. government began keeping official records of economic data.

The gradual reopening of the economy has resulted in some improvement in employment data. For instance, although unemployment (U-3) reached a new high at 17.1% (weekly data) it has since declined to 14.5%. Meanwhile, continuing claims (those who have been collecting unemployment benefits for more than two weeks) declined to 21 million after reaching a recent peak of 25 million.

Previously we discussed that millions of Americans were not likely to have been included in the unemployment data from March and April. We now know that 8.1 million American workers were not included in the April unemployment data due to misclassification. After adjusting for this correction, the real unemployment rate (U-3) from April was 19.5%.

So long as officials continue to make progress reopening the economy, the labor market will begin to show signs of improvement. But we believe a large percentage of lost jobs (12 to 15 million) will never return. This brings us to a more accurate gauge of unemployment known as the U-6 unemployment rate. The U-6 rate soared to 22.8% in April (unadjusted for corrected data as discussed above).

Washington has created a huge incentive for many Americans not to seek employment. Part of the problem with what is expected to become a persistently high unemployment rate is being exacerbated by the overly generous benefits that have been provided to unemployed workers through the CARES Act. In addition to their unemployment insurance, each worker who lost his or her job is also receiving $600 per week. Thus, a large percentage of U.S. workers (up to 20%) who lost their job since March are receiving twice as much from total unemployment compensation as they earned working full time. Even worse, under the CARES Act there is no requirement for unemployed workers to actively seek employment. Hence, the overly generous assistance being provided to many of the nation’s unemployed population presents a major problem that must be addressed sooner rather than later.