Protests sweep the country in the aftermath of the murder of George Floyd
This past weekend was marked by demonstrations, protests and riots in major cities across the country. The trigger was the death of George Floyd, a black man who died in police custody in Minneapolis last Monday, May 25.
We will not wade into the many disturbing aspects of these circumstances. We will note, however, that they come in the midst of a global health pandemic from which the nation is just beginning to emerge. Further, the source of this pandemic, the novel coronavirus, has caused extensive damage to our economy. Americans are suffering in many ways.
The Labor Department indicated that another 2.1 million workers filed for state unemployment benefits in the week ending May 22. Since the beginning of the crisis, 41 million have filed for unemployment. The rate of unemployment for the month of April was 14.7%. It is forecast to peak at 20%.
Fortunately, the number of people actually receiving jobless benefits has fallen from 25 million to 21 million. This is an indication that workers who were previously laid off have returned to work.
In another promising trend, the number of first-time applications for unemployment benefits has dropped for 8 straight weeks. So, the economy is beginning to recover, as businesses resume activity and rehire workers.
The Commerce Department released its monthly data last week. Wages and salaries fell by $740 billion in April. However, income from government support in the form of unemployment benefits and stimulus pay rose by $3 trillion. The net result was that incomes rose by 10.5% in April.
Consumer spending dropped 13.6% in the month of April. So, with incomes rising and spending falling, the personal savings rate was 33% of after-tax income in April. This is a record and it reflects the strange dynamics of the American work force. Over 20 million are unemployed, they have received trillions in financial aid and yet spending is dropping and saving is increasing.
Inflation is subdued, registering at negative 0.5% in April. This will give the Federal Reserve the freedom to continue its aggressive support of the economy.
Nonetheless, economists expect the nation’s output to drop 40% (annualized) in the second quarter. A recovery is forecast for the third quarter and it should accelerate in the fourth quarter and into 2021.
A Labor Conundrum
Congress and the Trump Administration are contemplating what to do for unemployed American workers once their enhanced benefits expire at the end of July. The normal unemployment benefit is $400 a week. Congress boosted the benefit by $600, bringing the total to approximately $1,000.
Economists at the University of Chicago found that two-thirds of unemployed workers are receiving more in benefits than they earned when they were working. This is causing dislocation in the economy. Many workers have little incentive to return to work, at least until their enhanced benefits expire. Employers are unable to entice some of their workers to return to jobs that pay less than government unemployment benefits. This was clearly not the intent of Congress, and policymakers are discussing what to do about it. They are considering providing a bonus to entice workers to return to their jobs. However, there is no agreement about how to this would be done.
Last Friday, the last trading day of the month of May, the Dow Jones Industrial Average was down 17.5 points, or 0.07%. The S&P 500 Index rose 14.6 points, or 0.48%. The Dow and the S&P 500 Index both rose 4% in May. The Dow remains down 5.8% for the year and the S&P 500 Index is off 11.0% year to date. The 10-year Treasury Note yields 0.66%.
Globally, across 187 countries, there have been nearly 6.2 million confirmed cases and over 372,000 deaths. In the US, nearly 1.8 million have been infected and over 104,000 have died. The virus is beginning to take off in Brazil, Russia and India.
There have been several reports indicating that number of deaths related to the novel coronavirus are undercounted. Health authorities believe some deaths were incorrectly attributed to other causes. We will never know the exact number of lives lost to the virus.
As we enter June, we want you to remind that you that we will be corresponding with you on Mondays and Fridays. We will, of course, communicate more frequently, if the circumstances warrant. We are now in a transition out of a medically-based partial closure of the economy. As we relax the closure, we can’t be certain of the consequences. Let’s hope that we can act together to contain the novel coronavirus, open our society and avoid a resurgence in the months ahead.
In light of the great tumult in our country, we offer the following for which we are grateful:
- The women and men who wear a police uniform. Yes, there are a few who are misguided. However, the vast majority of the police officers across this nation dutifully serve and defend us.
- For the racial diversity of this United States. It is a land of immigrants. Few of us can truly claim to be “Native Americans.”
- The resilience of the American spirit. The nation has experienced many challenges since its founding and it has risen to all of them.
Keep the faith, be safe and stay healthy.
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