Thursday, April 9, 2020
Initial Jobless Claims for last week have set new all-time record highs for the third straight week. This morning’s headline posted 6.606 million new unemployment filings, topping the 6.6 million the previous week and the 3.31 million the week before that. While brutal, this number was not unexpected; consensus for jobless claims in the past week had been right around 6 million or so.
Continuing Claims now get into the act, as well. Because they report the week previous to initial claims, they had yet to reflect the crushing levels of unemployment — until today. This is a new all-time record: 7.455 million longer-term unemployment claims, with expectations for this headline to get much worse in the coming weeks. It’s harsh medicine, but these are “pig through the python” times.
However, though expected to be the big news of the morning, jobless claims have just been eclipsed by a new, unprecedented action taken by the Federal Reserve: another $2.3 trillion is being injected in programs to support the U.S. economy while measures to combat the COVID-19 coronavirus continue. These programs include $600 billion in loans by way of Main Street lending, which involve 4-year loans to companies with 10K or fewer workers and revenues of $2.5 billion or below.
The Fed will also expand corporate credit premiums and Term Asset-Backed Facility (TALF), supporting loans for things like insurance and autos, which will support up to $850 billion in credit. The Fed will also purchase up to $500 billion in state & municipal notes, while $195 billion will go to backstop the Fed itself. Banks paying out the loans would keep 5% and then sell what’s left back to the Fed.
It’s an extraordinary measure any way you slice it. What Fed Chair Jerome Powell and his associates have clearly decided is that while the U.S. may be going through a healthcare crisis no one currently residing on Earth has ever seen, credit during this time will not be a problem. The Fed had already poured massive amounts of liquidity into the economy a month ago in anticipation of the crisis we are currently enduring, and its measures this morning go above and beyond where any other Federal Reserve agency has ever been.
Early traders absolutely loved the idea. Bracing for the dismal jobless claims figures, pre-markets were solidly in the red. Following this morning’s Fed announcement, the Dow has swung from about 200 points down to 350 points up, with seemingly more room to roll. Even crude oil prices are gaining ahead of today’s opening bell, as many oil companies are highly levered and were seemingly at-risk should deep recessionary conditions persist.
Finally, March Producer Price Index (PPI) numbers showed a month-over-month improvement, but still in negative territory. A headline of -0.2% was better than the -0.3% projection and the -0.6% reported for February. Last month’s headline was dragged down by a 1.0% drop in final demand goods.
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