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Unemployment Better Than Expected, But Bankruptcies Are Still To Come

Jun. 05, 2020 4:28 PM ET8 Comments
John M. Mason profile picture
John M. Mason


  • The unemployment report coming from the Labor Department was a lot better than expected, but there is some concern over the numbers and other labor data are not encouraging.
  • The economic conditions continue to plague those companies with excessive amounts of debt and we are still anticipating that bankruptcies are going to pick up.
  • A rapid recovery is still not that likely, not only because of the previous two points, but the economy is still facing several more setbacks in the future.

Well, the US Labor Department reported better unemployment figures today than was expected.

Many people were thinking that the unemployment rate might come in above 20.0 percent.

After all, the reports on new claims of unemployment had been going up and the total reached this week amounted to around 43.0 million people.

But, the Labor Department reported that for May the unemployment rate was 13.3 percent, down from 24.7 percent in April.

There were 2.5 million jobs added in May, again surprisingly high.

Radical Uncertainty

Let me just say that these numbers will be revised. What was released was just a first estimate.

And, with all that is going on in the economy…known and unknown…I believe our statistics will be somewhat of a guesstimate for a relatively extended period of time.

The structure of the economy is changing so that how we define things and how we measure things will need to change as we go along, but while we are “going along,” we are going to have to accept and build our thinking around the information that we do receive. We are going to need to see a lot of data and build our narratives and then try and confirm them as we go along,

In some cases, we may not really fully know things until some time after they are reported.

One example came up this morning indicating that some of the data reported may need to be revised.

James Politi and Eric Platt report in the Financial Times that

Some of the details of the jobs report were less encouraging than the top-line figures. The labor department noted a classification error whereby some people had been incorrectly reported as employed but absent from work, instead of temporarily laid off.”

Otherwise, the unemployment rate would have been about 3

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (8)

Subtle profile picture
People that make mistakes predicting wrongly compound their mistakes by doubling down. While it's not all rosy it is a hell of a lot better that anticipated. You flat out warned us of another collapse in the stock market. If I listened to you I would have taken a defensive posture and a large cash position. That would have been a bad mistake. It would have been better if you just said nothing instead of doubling down. Do you have a political agenda?
You don't have to be a permabear to note that the S&P is back to where it was last December. If 2021 GAAP earnings estimates are accurate, S&P earnings for 2021 will be 4.6% higher than for 2019. So, earnings growth of 2.3% annually for the two year period from 12/19 to 12/21. I know that I'm excited.

Add in the current 1.9% S&P dividend yield, and you get a total return of 4.2% annually, with a few caveats. For example, corporate leverage is soaring. Those businesses that survive 2020 will do so with much higher debt loads, and be more fragile going forward.

I think things have been pretty silly for the past 10% or so in gains. That's the sort of statement that looks silly itself on a day like this, but should look a lot less silly in a few weeks. Maybe a month. I don't think there's much more room for this nonsense to continue.

As an aside, how is it that Wall Street's best and brightest expected 7.5 million job losses in May, when no new states were shutting down, and most were opening up? Why is it a surprise that workers were hired back to staff the reopening stores, restaurants, and so forth?
Bankruptcies are good. The survivors get a bigger share and expand.
Yes, while this is good news, the market is still terribly disconnected with reality. I have never seen anything like this. I guess if the FED keeps juicing it might continue going up, but I would assume there would eventually be a day or reckoning?
Kenmare profile picture
I share your concerns. The Fed is doing its job well, as John Mason Frequently argues, but I think one should also worry that they may be inflating a huge asset bubble. I suspect that is a prime reason why Buffett has sounded so cautious lately. Many argue that price inflation is dead for the foreseeable future. But they don’t seem to count the palpable inflation in asset prices.
Indeed. The Fed using make believe money to fund a make believe market with make believe share prices. Was buying some really great companies when their stock prices fell to the realm of reasonable. However now on the sidelines. All good things must come to an end, and this make believe market will be no different.
Subtle profile picture
It's called Trump economy. There is hope for great things to come and investors believe in it.
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