Moneybeat – Analyzing unemployment claims

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

NICK EICHER, HOST: Good morning to financial analyst and adviser David Bahnsen.

DAVID BAHNSEN, GUEST: Well, good morning, Nick. Good to be with you.

EICHER: Well, good to be with you on a Monday after new claims for unemployment benefits have fallen below the million mark.

That’s the number you’ve been waiting for.

BAHNSEN: Yeah, I think there’s sort of a symbolic marker in it. You have both the absolute number that went below a million, as you say, and then you also had the number versus expectations because it was expected to be a little over 1.1.

And so if it had gone below a million and they were planning on it being below a million, that would have still been symbolically good to see. But I think the fact that it was so much better than folks were expecting—and even better than I was expecting, relative to what is sort of taking place this summer. I’ve been very curious what the second surge of job losses would have been in the food and hospitality business in light of some of the partial re-shutdowns of the summer. And more and more it is looking like it is not as significant as it could have been.

EICHER: I want to run through a couple of the other data points, the retail sales report: 1.2 percent in July. According to the Wall Street Journal, sending sales above pre-pandemic levels. 

Is that a symbolic marker for you, as well, or less so?

BAHNSEN: The retail sales number being 1.2 percent up in July and then back to pre-pandemic levels is not a particularly significant deal for me and here’s why: First of all, on the same day that it came out, the industrial production number came and was up 3 percent, which was a far bigger marker for me. 

But, again, I’m not a Keynesian, Nick. And what I mean by that is I don’t subscribe to the economics that center around demand, but rather I subscribe to economics that center around what we would call supply. Another way to say it is production. 

And the theological argument for it is that production must come before consumption. So, when we have an economy that there’s a lot of people who want to spend money, I think that’s great. I also think it is about as obvious and unexpected as the fact that the sun will come out the next day. So, in this particular case, people could say, “No, but it’s still encouraging because we’re in an economic contraction. People are finding a way to spend money.” 

But as I’ve said on this interview many times, we’re in an economic contraction that is largely limited to a small number of people and what you’re in fact seeing is a lot of people with more free time that are living their lives in front of a computer screen or a mobile phone and so that e-commerce would go higher and therefore retail spending would go higher doesn’t surprise me at all. But as far as it is encouraging me, it’s not sustainable if it’s not coming from a productive part of the economy. 

So, it’s great that there’s going to be spurts of retail consumption here and there. There always has been and there always will be. I don’t ever lack faith in the American people’s ability to spend money. 

My question is do we have the productive capacity of an economy to be able to afford continuing spending money, to find new things to spend money on, to find things that whet our appetite. Production has to drive any healthy economy, so I’m very sorry for my long answer to your question about a benign retail sales number, but there’s a little bigger picture perspective on it.

EICHER: And you did touch on the industrial production number: 3 percent for July. That’s three months in a row, so that has to be big-time encouraging.

BAHNSEN: It is big-time encouraging. Now, of course, you had to get the industrial production number off of the depths of where it was three months ago. But it looks to me to be more and more sustainable. 

Why is the industrial production number more impressive? Because it shows businesses willing to go produce and make and manufacture despite their long-lorm questions about economic growth and viability. 

So, it is a signifier and then the virtuous cycle is such that it becomes a self-fulfilling prophecy. You get a healthy economy when you have productivity.

EICHER: Let’s talk now about the politics of stimulus or recovery spending, however you want to term it. President Trump responded to the political impasse in Congress. He issued executive orders (1) on unemployment payments, (2) deferring payroll taxes, (3) protecting some renters from eviction, (4) some student loan relief. Just seemed to short-circuit the process. Did you see it coming and what do you think it all means?

BAHNSEN: Yeah, no, I certainly did and it made it very clear. I didn’t know that all four of them would happen. It was, you know, President Trump took a gamble. 

Now, I’ll say two things. Politically, I actually suspect he’s going to end up winning on it, but constitutionally and in terms of the propriety of it, it’s appalling. But he basically passed four things that are the job of legislatures to pass: tax law and disbursement of money through the extension of unemployment. But it’s certainly, had President Obama done it—in fact, when President Obama did do it—it was considered to be appalling. 

But here’s the biggest thing, the stock market doesn’t care about any of it. The market has, I believe, been up 12 of the last 14 days. About 2,000 points since the stimulus negotiations broke down. So, best case, it appears that the stock market doesn’t care about the stimulus, which provides very little incentive for them to go get it done. 

You recall I was on your show as CARES Act was getting negotiated. The market was dropping 1,000 points a day because they weren’t completing it and it put on the sort of aura of urgency. But I actually think it’s even possible the stock market is not going up despite a lack of a deal, but because of a lack of a deal. The market might be saying, hey, the numbers are good enough. There are certain targeted things that probably still need to get done—a PPP refill, restaurant support, at some point the Fed is going to have to buy some of the debt of the states. 

There’s little things that are specific that will end up having to get done, but I think the market might be saying, if we can kind of go to the next stage without another two or three trillion dollars of debt, let’s do it. So, usually the market loves all the stimulus it can get. I’m not totally convinced of that, but it’s certainly behaving that way.

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

BAHNSEN: Thanks so much, Nick.

(AP Photo/Mark Lennihan, File) In this June 16, 2020 file photo, a sign for a Wall Street building is shown in New York. 

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.

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