Moneybeat – Has the economic slump hit bottom?


MARY REICHARD, HOST: Coming up next on The World and Everything in It, the Monday Moneybeat.

NICK EICHER, HOST: Several economic reports last week and here now to help make them more meaningful to you is financial analyst and adviser David Bahnsen. David, good morning to you.

DAVID BAHNSEN, GUEST: Good morning, Nick.

EICHER: I guess we start with the unemployment claims. What I saw was 2.1 million new claims filed, still high, but I also noticed that the overall number of continuing claims fell to 21 million. Good news?

BAHNSEN: There’s a little nuance here. It’s certainly good news and we expect that that number is going to be dropping. It dropped by 3.9 million and unfortunately I don’t believe there were 3.9 million that fell off because Florida and California, they have to file every other week. So it was an off week for these two states that have a substantial amount of our unemployment. 

So there’s a little nuance in there, but either way we certainly know that there are people who filed for unemployment earlier in COVID who are not not filing continuous claims. And we further know that the number of people making new initial jobless claims is dropping quite a bit. The overall number is still very high, though. Don’t get me wrong. We have a lot of work to do. But headed in the right direction.

EICHER: OK and so in that light, let’s talk about the Commerce Department April numbers. This is a big report on personal consumption expenditures by far the biggest component of Gross Domestic Product. For April, PCEs down 13.6 percent, but I’ve seen economist surveys saying this probably represents the bottom or close to the bottom.

But I wanted to call attention to one particular component: PCEs, personal consumption expenditures way down, personal income up 10-and-a-half percent. 

How can that be?

BAHNSEN: Well, it’s because, unfortunately, the income level goes up when the denominator now takes out those people who are out of the workforce. And the people who are out of the workforce were in the lower deciles of income. And so imagine if the entire workforce was two people and one person made $50 grand and another person made $100 grand and the person who made $50 grand lost their job. Average wages would have gone up, right? That’s a silly example, but it’s actually the accurate way on a very simplistic level to illustrate what happened. 

And in terms of the expenditures numbers, we’re going to want to look again in June when we get the May numbers. But it is definitely very different than it would have been had this quarantine happened in any different of an age, anything lacking a digital component. Because the personal consumption—both in terms of retail shopping and food and beverage—is really much different than it would have been if people didn’t have access to e-commerce and food delivery and things. So the numbers are atrocious, but the numbers are also very distributed from where they otherwise would be because of the nature of our modern economy.

EICHER: The White House put the word out last week that through the summer, the White House will not be issuing economic forecasts. The reason, let me find the quote here: the economic data are fluctuating and that to try to project out would not provide a meaningful snapshot. 

But the Congressional Budget Office will be projecting, and I want to get your thought on this, CBO predicts that by the end of 2021, the economy overall will be smaller than it was at the end of 2019, two years with basically no or negative growth. And CBO projects unemployment above 8 percent. 

Does that ring true to you? Or are they just throwing darts at a dart board here?

BAHNSEN: Both things are true. It rings true and they’re throwing darts at a dart board. 

If I had to do my own dart throwing, I think 8 percent unemployment at the end of ’21, meaning 18 months from now, sounds too high. My number would have more of a 5 or a 6 handle. 

But as far as the GDP size, I expect that GDP will be back to where it was pre-COVID in late ’21, early ’22. But the more important number is when it gets back to its trend line. In other words, where GDP would have been apart from COVID, that is going to take a little longer.

I want to stay on a hobby horse I’ve been on, Nick, and that is not just the gross number of GDP—positive or negative—but the composition of GDP. The question mark is not the consumer.

Business investment will dictate how much the supply side of the economy gets prepared for growth and for innovation and for activity. And that, I think, is going to be a big question in how GDP or economic recovery looks in the quarters and years to come.

EICHER: David Bahnsen, financial analyst and adviser. David, thank you. 

BAHNSEN: Thank you so much, Nick.


(AP Photo/Mark Lennihan) A historic marker for Wall Street is shown, Tuesday, May 26, 2020, in New York’s financial district. 

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