Initial unemployment claims have been a sticking point for the recovery narrative:
The current level is 857,000, which is ~250,000 higher than the highest point from the last recession. Some people have argued that this number is soft due to issues with state unemployment programs, which are being flooded with applications (emphasis added).
Adding to the challenge for analysts and forecasters, the pandemic has thrown the data itself into disarray. For the second week in a row, the jobless claims data carried a Golden-State-size asterisk: California last month announced that it would temporarily stop accepting new unemployment applications while it addressed a huge processing backlog and installed procedures to weed out fraud.
In the absence of up-to-date data, the Labor Department is assuming California’s claim number was unchanged from its pre-shutdown figure of more than 225,000 applications, or more than a quarter of the national total. The state began accepting new filings this week, and is expected to resume reporting data in time for next week’s report.
While this is a standard statistical practice (substituting past data for new data), there are legitimate questions about whether the unprecedented nature of the pandemic is making this method of substituting data moot. I don’t have an answer on that, but will keep my eyes open.
I’ve been lukewarm on REITs, even though they’re a traditionally conservative investment. The reason is pandemic related: small businesses are going under, lowering the amount of rental income. High unemployment and the drop in fiscal support are increasing residential evictions. And, larger businesses are rethinking their use of office space – a trend that will continue:
Many more companies are expected to delay their return-to-office dates to keep workers safe. And workers said they were in no rush to go back, with 73 percent of U.S. employees fearing that being in their workplace could pose a risk to their personal health and safety, according to a study by Wakefield Research commissioned by Envoy, a workplace technology company.
Here’s a chart of the main real estate ETF that I track:
The VNQ has been trading sideways, mired with the 200-day EMA – since early June.
The IMF released its latest Global Financial Stability Report, which contained the following observations (emphasis added):
However, vulnerabilities are rising, intensifying financial stabilityconcerns in some countries. Vulnerabilities have increasedin the nonfinancial corporate sector, as firms have taken onmore debt to cope with cash shortages, and in the sovereignsector, as fiscal deficits have widened to support the economy.
This was also discussed in the latest Federal Reserve meeting minutes and was highlighted in a recent speech by Boston Fed President Rosengren.
Let’s take a look at today’s performance tables:Yes, the indexes were down. But the overall drop wasn’t that large. Mid-caps were the worst-performing broad index, and they only lost .68%. The SPY was off .61%; the QQQ was only down .04%. This is hardly anything to get concerned about. Only two sectors rose, and then only marginally. Real estate dropped on