The stock market is a “leading” economic indicator and almost always marches in front of the economy. The steep declines in the stock market during late February and most of March occurred well before there was much economic damage related to the COVID 19 virus. We can all hope that the quick recovery occurring in the stock market is an indication of how quickly the economy can recover. While some stocks are still down a significant amount from their mid-February prices, the broad markets have pared their losses down to a negative single digit number for 2020. Time will tell if those recent increases in stock prices can be maintained and how quickly the economy will recover.
Read the headlines carefully – while the unemployment rate has spiked significantly due to the virus, there is more to the statistic than you might first see. As part of the stimulus relief package the federal government is providing an extra $600 per week of unemployment. Just to be clear, that is $600 in addition to whatever amount of unemployment a worker would have already qualified to receive from their resident state. In total, some unemployed workers are drawing close to or more than $1,000 per week. Assuming a 40 hour work week, $1,000 works out to be an hourly wage of $25. The end result is that, because of the $600 per week additional benefit, there are many people who have a higher income by being unemployed. When the government tells you shut your business down and offers a significant financial incentive to not work, it should not be surprising that the unemployment rate has skyrocketed.
The $600 per week additional unemployment is temporary though; it is only good for four months. I strongly suspect you will see unemployment fall very quickly once people’s four months run out. Employers who care about their work-force understand the economies of this extra $600 per week also. The unemployment additions have put these employers in a precarious position. They want what is financially best for their employees, while at the same time trying to manage their business through a very difficult environment. It has become a bit of a “business decision” for employers and workers as to when it makes sense to go back to work.
Let me be clear about two things –
- The unemployment benefits did not create an increase in income for everyone. Higher earning workers on unemployment are still at an income deficit.
- I’m not advocating for any strategy for employers or workers based on the stimulus relief from the government, merely pointing out some of the obvious and widely recognized situations.
As always, we hope you find the Weekly Market Review both informative and interesting. Have a nice week.
Trevor N. Coe, CFP®