At the end of June, we wrote an update discussing the changes certain states were making regarding unemployment benefits. Several states were ending the enhanced payments from the federal government and the expanded coverage that had allowed people outside of the normal unemployment insurance program to file claims. At the time, we noted that it would be important to watch how this impacted consumer related data such as payrolls, labor force participation rates, income, spending, and sentiment. Several of these data points have been released since that date and are providing an early indication into how these changes are impacting consumers.
On the unemployment side, the regular state claims have continued to decline, dropping from 3.279 million on June 5th to 2.795 million on August 7th. Pandemic unemployment assistance has declined from 5.95 million to 5 million and pandemic emergency UC has declined from 5.273 million to 3.793 million. This has lowered total continuing claims to 12 million from 14.85 million.
Source: Department of Labor
This change in policy in certain states has contributed to a decline in unemployment filings, but it has not yet impacted the change in payrolls or unemployment. States that allowed benefits to expire had below average payroll gains in July and the same change in unemployment rate (no change in labor force participation rate).
This is only one months’ worth of data, but it will be something to monitor until the labor report in October. That report will include the month of September, when the program is scheduled to end nationally.
The national labor force participation rate increased 0.10% from June to July and is at the same place it was in August 2020. This should start to change if workers that want to be employed have been holding out because of the benefits that have now expired. If it does not, either these workers have chosen to retire or there are other forces preventing them from coming back to work.
Consumer sentiment has been sending some mixed messages. The University of Michigan August update was the lowest since December 2011 and the current conditions component declined for the fourth consecutive month.
The Conference Board Consumer Confidence Index declined 11 points in August to the lowest level since February. The present situation index also declined for the fourth consecutive month.
In contrast, the Langer Weekly Sentiment Index increased for the fifth consecutive week to the highest level since March 2020.
We will have to continue to monitor the situation and see which sentiment ends up being correct and what impact this has on the consumer data.
Consumer spending rose 0.30% month-over-month (MoM) in July (first month since benefits expired). The services area grew by a strong 1% but durable goods continued to normalize (declined by -2.3%). This trend should continue barring a decline in consumer engagement around in-person activities that would negatively impact services spending.
One concerning area to continue to monitor is consumer price inflation. Real consumer spending (adjusted for inflation) declined -0.10% MoM in July and has declined in two of the last three months.
Incomes increased MoM in July by 1.1%. The headline was supported by more fiscal stimulus as the first child tax credit payments were received in July. A positive sign for future consumer activity was the 0.90% increase in employee consumption, the most since November.
At the current time, consumer data does not appear to have been negatively impacted by the expiration of enhanced unemployment benefits. The above-mentioned data set will be important to monitor throughout the remainder of 2021 as the federal program is set to end in September.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC