The Market Keeps Distancing Itself From the Economy

(Bloomberg Opinion) -- The Thursday morning release of the weekly U.S. jobless claims has arguably become the high-frequency indicator that is most followed not just by economists, market participants and policy makers but also the specialized and general media.

Here is a summary of this week’s main messages:

The overall labor market situation remains horrible. The absolute numbers continue to set records, from the seven-week total of 33.5 million jobless claims to 22.6 million in continuous ones. Behind these numbers is a high degree of suffering as illustrated by long lines at food banks across the country and reports of deteriorating mental anxiety and domestic violence.

The rate of labor force dislocation, albeit distressing, appears to be moderating. The weekly 3 million jobless claims number is the lowest in the last seven weeks and less than half the worst level.

The report highlights the urgent and important policy priorities of dealing both with the implications of such a terrible shock to jobs and with ensuring that short-term problems don’t become long-term ones that are much harder to solve.

With markets focusing on the improvement in the “second derivative,” that is a reduction in the rate of labor force dislocation, U.S. stocks rose. This widens an already considerable decoupling from the real economy and will fuel the debates on Wall Street versus Main Street, companies versus people and the well-off versus the marginalized. 

Finally, the key questions going forward include:

  • When do the aggregate numbers stabilize?
  • How quickly do the unemployed get jobs?
  • How many drop out of the labor force?
  • What happens to hourly earnings?
  • What does the post Covid-19 labor force look like?

While Friday’s more comprehensive monthly job report may provide some insights, satisfactory answers to these important questions won’t come immediately. Rather, it will be a process of carefully assembling a puzzle that is an important part of a crucial twin economic challenge: winning the war against a depression and securing a peace of high, inclusive and sustainable growth.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide."

©2020 Bloomberg L.P.

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