- U.S. unemployment claims expected to rise by another 5.5 million as labor debacle grows
- PPP program runs out of money, stepping up pressure on Washington to act
- China cuts rates ahead of tonight’s expected GDP plunge of -12.0% q/q
- Oil prices fall to new 18-year low
U.S. unemployment claims expected to rise by another 5.5 million as labor debacle grows — The consensus is that another 5.5 million people filed for unemployment benefits in the week ended last Friday (Apr 10). That would add to 6.6 million and 6.9 million in the two previous weeks and bring the 5-week total to 22 million.
The 22 million people who have filed for unemployment represents 14% of the 158.759 million persons who were employed in February. That 14% layoff figure actually under-counts the number of people who lost their jobs because not everyone who lost their jobs will file for unemployment benefits and because there is likely a big backlog of claims yet to be added to the official count.
Adding the 14% of people who have lost their jobs in the past five weeks to February’s unemployment rate of 4.5%, produces an approximation for the unemployment rate of 18.5%. The unemployment rate will likely rise from there as more people are laid off this month and possibly in May. The unemployment rate as soon as May may be headed above 20%.
The U.S. unemployment rate appears to be headed towards doubling the current post-war record of 10.8% posted in 1982, and perhaps stopping only modestly below the Great Depression’s record high of 24.9%. The only good news is that the unemployment rate in this cycle should fall back fairly quickly as the economy reopens and at least some furloughed employees are hired back to their old jobs.
PPP program runs out of money, stepping up pressure on Washington to act — The Wall Street Journal reported that the $350 billion Paycheck Protection Program (PPP) would run out of money late Wednesday. The PPP program will certainly be out of money by today.
Senate Majority Leader McConnell in today’s pro-forma session in the Senate may try to again pass a clean $250 billion hike in the PPP program by unanimous consent. However, Senate Democrats are expected to block the vote because Democrats want a $500 billion program that also includes money for hospitals and state-local governments as well as an increase in SNAP food stamps.
Mr. McConnell has shown little interest in negotiating a compromise and is sticking to his demand for a clean PPP hike. The only path forward appears to be talks between Treasury Secretary Mnuchin and Senate Minority Leader Schumer. The House is due to hold a pro-forma session on Friday.
There is talk that negotiations will continue into next week, which means that no more money will be approved for the tens of thousands of businesses that have already applied for PPP loans. Those loans are designed to keep people employed at small businesses across the country.
China cuts rates ahead of tonight’s expected GDP plunge of -12.0% q/q — The People’s Bank of China on Wednesday cut the important 1-year medium-term lending facility (MLF) rate by -20 bp to 2.95%, adding to the last cut of -10 bp on Feb 17. Yesterday’s rate cut will pave the way for a -20 bp cut on April 20 of the key 1-year loan prime rate (LPR), which is currently at 4.05%. Wednesday’s rate cut wasn’t a surprise since the PBOC recently cut its 7-day reverse repo rate, telegraphing a rate cut for all of its key rates.
Wednesday’s rate cut bolstered market sentiment ahead of tonight’s (ET time) release of China’s Q1 GDP report. The consensus is for China’s Q1 GDP to plunge by -12.0% q/q and -6.0% y/y. A -12.0% q/q drop in China’s GDP would be massive and would meet the commonly accepted definition of a depression since it would be larger than a -10% drop in GDP.
The good news for China is that it appears to have brought its pandemic under control by enough to start reopening its economy. Bloomberg estimates that the Chinese economy is currently running at about 95% of normal capacity.
Oil prices fall to new 18-year low — May WTI crude oil prices on Wednesday edged to a new 18-year low of $19.20, taking out the previous low posted in late April and closing -$0.24 (-1.19%) at $19.87. June Brent crude oil on Wednesday fell to a 1-1/2 week low and closed -$1.91 (-6.45%) at $27.69. WTI crude oil prices so far this week have plunged by -13% despite Sunday’s OPEC+ agreement.
The markets were not particularly impressed by the OPEC+ production cut agreement of -9.7 million bpd because it was much less than the 25-35 million bpd plunge in oil demand that has been caused by the pandemic. Despite that agreement, the IEA yesterday said that it expects world oil storage facilities to be completely full by as early as June. If global oil storage facilities completely fill up, then oil prices could easily fall into the teens or even lower on forced selling.
One problem with the OPEC+ agreement is that it doesn’t begin until May 1. That means that OPEC+ members will keep pumping away during the second half of April.
WTI oil prices also fell sharply on Wednesday’s bearish EIA report. EIA crude inventories surged +19.25 million bbl to a 2-3/4 year high. Crude oil inventories at Cushing, the delivery point for WTI futures, rose +5.72 million bbl to a 2-1/2 year high. Also in the EIA report, U.S. gasoline consumption plunged by -46% y/y to a record low of 5.1 mln bpd, with the 4-week average falling -32% to 6.4 million bpd. On the bullish side, U.S. crude oil production fell -0.8% w/w to an 8-month low of 12.3 mln bpd, down by -6% from Feb’s record high of 13.1 mln bpd.
