Surveillance: Record Jobless Claims with Porcelli

and a half. We're going to have some dreadful data in the United States for America. It won't surprise many people that it's ugly. It will be ugly. But how should we be thinking about some of these data points as they come in through the next couple of weeks. David, Well, I think we should not overreact to them. What we've they are going to be ugly. I mean, we could get two million new unemployment claims that would be three times the highest number we've ever scene. That could be

followed up by another few weeks of similar things. So I think the unemployee rate could quickly go above ten percent UM. Ten point eight percent is the highest that we've seen since the Great depression. We could we could hit that. That's all pretty ugly, But look at what's going on in terms of government action here to try and take the sting and the pain out of this.

I think the release build of the Senate just passed earlier this morning will provide the ability for a lot of workers to to get past this period and be able to pay their rent and pay their their bills. Um. And I think the idea is to rehold the economy and suspended animation until we get control of this virus. And we will eventually do that. I mean, that's the other thing. It's it's a long time, you know, A year seems like a long time to wait for a vaccine.

But when we get a vaccine, this thing is done. Um. So it's not endless, um, but it is obviously painful in the interim. Let's think a little bit more deeply about that particular package. There as some people out there saying that it won't prevent a recession. While it's not designed to prevent a recession. It's about limiting the damage and building a bridge through this very very tough time

and over some very troubled waters. So two big objectives for a plan like this prevent more defaults and obviously limit layoffs. Do you think it can do that? Well, I'm not sure there's actually gonna limit the layoffs. I mean it may for some companies because there is obviously a lot of this in which there's small business loans which you're which essential you get, um, you can you can the read small business grants, you can use them

for payroll. So I think that may actually limit some layoffs and they may have some impact on the unemployment rate. But as you say, I mean, you know, I regard this kind of as night quill for the social distancing recession, you know, I mean, we don't actually have something that's going to cure the common Code where we can reduce its symptoms. And this is the way of reducing the symptoms, the painful symptoms of recession. Um, we'll have to see

on the layoffs, because it works two ways. Yes, we've given incentives to small businesses not to file front employment or the layoff workers. But actually that's six hundred dollar payment um per week on eployment benefits that actually gives an incentive to workers to actually get laid off. I mean, the average unemployment benefit being paid in January five dollars. Now you're saying it's going to be nine five dollars a week. That's basic a thousand dollars a week, fifty

two dollars a year. There are an awful lot of workers, particularly these uh these industries that are most effectives. We

weren't making anything like fifty two dollars a year. So it actually technically makes sense for them to say the employee, thank you so much for keeping on the books, would you mind firing me please so I can connect these unemployment benefits the next four weeks four months and then and then let's talk David Kelly brilliantly said, and this goes you know, Lindsey Graham of the Carolinas was talking about this as well, which is the incentives in the

perverse incentives and the constructive and that we're setting up. What is your reading on the history of this wall of money and what it does to the incentives of a nation. Well, I think I mean, at least it's temporary because you know, you want you want to prevent hardship, and if you send out a check to people in cash, um, you know at the start, that does help. But there is there is some perverse incentive there. And you do want people who can work work from home or work

remotely or whatever. You know, as you say you're gonna do yoga instruction over the internet, fine do it. You shouldn't have an incentive to say, well, I can't do is because I have to go down to claim unemployment benefits. So I think there are some problems in it. I understand the creaky system. This is the only way they could actually get the money out fast, and I get that,

but there is there is that problem. And and also you know, all this cash, it's not actually going to stimulate economic activity because what are you gonna do with the money? I mean, what can people do that all the fun stuff in life have been closed down. So I think we're gonna sit on it. But that also means that when the virus, when we have a vaccine and people can actually spend the money, we're gonna have a real surgeon economic activity. I have a huge problem

with this, folks. And so much of this is anecdotal incomes from you know, the experience along the way. How is it a a David Kelly a zillion years ago on a Livia blanch Yard still it up and put up a chart and he said, look, there's been a huge drop here in nominal GDP and real g d P. Here's the glide path back and someday out there we get back to normal. Can we just assume that X number of quarters or years out everything gets back to normal and the government basically gets to lower the depth

that wasn't cured in the heart of this crisis. Well we could. So the first part. Can the economy get back to normal? Absolutely? Once you know, they may be slightly different companies. There will be some companies that die in there some companies that's that will be born. But once we have the old clear here on the disease, this economy will want to get back to full employment.

And I think it can do that now, whether the government has the discipline to fade to fade out all these these things and take the hard choices which it hasn't taken to this point. I mean, remember in the last few years before this, we were running a boom economy and we ran up a depit to almost five percent of GDP, which is utterly reckless. So we do that in the best of times, Do we really think that we're going to have the splene to Washington to

cut the depth afterwards. I'm pretty skeptical of that. So the economy and get back to normal, But I don't think that's Washington is going to be disciplined, John, Tom, you say yeah that many times I ask you, we're going to ask a question, you can ask you a question. I'm just joined David Kelly. John, I'm getting used to this working at home. I bet you are, and I'm sure ever one of the studio I was getting used to it too. It might not want your home, they

might want to keep you there, David. Great to have you with us on the program. Key of JP Morgan Asset Management. Let's bring a temple Sally shown. We NBC Capital Markets chief US economist Tom We knew the number was going to be bad. There's a lot of economic pain behind that economic statistic. Walk me through how we should be processing a number like that in the weeks to come. I mean, let let me first start by saying, honest, see, we thought that there was a risk and that we

could be even worse than that. Um, you know, we're we're we're trying to I's we're in a period where sort of the standard economic data that we all like to look at, economists like to look at. UM. You know, that's that's not really gonna be very helpful right now. So we're trying to find sort of you know, let's call it alternative data that that we can sort of scour to try to get a sense for you know, how how how the backdrop is UM evolving on a

on a live basis. UM. And you know, one thing we found was this this sort of interesting piece of data from something called home Base. UM. The whole home Base is basically a company that that allows UH small businesses to to you know, manage schedules and etcetera, etcetera. UM. And so when when when we were looking at that recently UM. And the great thing about this data it actually comes in daily UM. And when we were looking at that data, I mean that that data really started

to scare the heck out of us. I mean we we literally thought that you could see a five to ten million claims number today. UM. So so three million UM. Honest, I think relative to expectations, UH is is actually pretty modest. And in fact, you know, I think that's the futures are even responding to it. I mean futures are taking back some under decline. So, um, look, I think the reality is as we go forward on a go on a go forward basis, you know, I think that this

is just the beginning of claims remaining incredibly elevated. Um. Again, I think that will like this home base, I think are are are really indicative of some real payment labor back drop, Tom Persolle, what is the average income of those three points three million people? What kind of jobs are those? You have a some rough statistic of what the average take home pay is of all this? Well,

you know what what I would say. What I would say is this if you look at you sort of where some of the again, if we if we were just using this, I mean, I'm giving these guys this free plug, you know, if we keep on using this home base. Um, I think it's really interesting if if you look at some of where where the really big declines came from, some of the really big declines came and see what we would define a sort of more

of the you know, the lower income areas. So you know, food and drink, um, you know that saw some very sizable declines. Um, personal care saw some very sizable declines. So right now. I think it's very easy to make the case that a lot of the jobs that are being lost are in the lower income spectrum. Tom. One thing that we've been talking a lot about is the speed of this happening and the speed of the response or lack thereof, in terms of trying to prevent companies

from laying people off to start with. And perhaps one way to read this number is the layoffs have already begun to such a degree in mass that there is a question how much is reversible At this point, we are expecting the bill to pass in Congress shortly. But from that perspective, given the fact that we're seeing the layoffs already taking place in a mass way, how concerning is it that this damage is irreversible in the short term? No, I I I yeah, I wouldn't take that that that

tapped on this. I would say that if in fact, I would even take the opposite view. I think if you actually you can seem the massive amount of layoffs straight away, and then you can start to plane out on on some level. Right, So the question then becomes how long is social distancing going to remain in place? Um, you know, again, the degree which it is in place

right now. Um, and and and that's where this is a very time sensitive conversation, which again I think it's an idea that is being is elusive to a lot of folks. So if this goes until the end of April, right, let's say, you know, extreme social distancing in the United States goes to the end of April, um, you know, then it's really easy, you know easy, then you can actually come to a reasonable conclusion on what sort of growth is going to be um, you know, and and

so again this is really illustrative. So so just bear with me for a second. So right now we're looking for you know about let's just end say round numbers about ten percent decline in Q two growth. And that's assuming that severe social distancing basically starts to come to an end towards the end of April, you know, sort

of beginning of May. If we slide that out, we slide out social distancing, extreme social distance to the to the end of May instead, then all of a sudden, O minus ten becomes minus right, So do you see the time center. So there's sort of a sliding scale on this, and that's why I say time sensitivities is critical because if all of a sudden, you know, uh, you know Dr Fauci or or um uh, you know, any of the other folks that that are talking about the numbers, if all of a sudden they say, hey,

it looks like the numbers are starting to um stabilize. Um, you know, we're getting toward the peak. Once you get toward the peak, whenever that might be, that's when you you can actually start to have the conversation of Okay, now we can talk about how we're going to reopen things, um. And so to me, that's that's that's a critical part

part of this conversations all about time. So if all of a sudden that happens in the next handful of weeks, UM, then I don't think this necessarily has to keep on going south. I think you can actually get some stabilization. To be clear here, then you can't really have a second half call until we get to the end of April. Would that be fair? I mean, well, I have to have a second half call getting a really clear look at the outlook. Yeah, Jonathan, I think you're you're hitting

the nail on the head. It's really difficult to know what the second half is going to be until we all know what what social distancing and the degree to which we are willing to take that UM is going to look like UM. But right now, again, if if our view that you know, this is basically an end of April beginning of May UM issue, then you know you can easily have a rebound in in the second half of the year. Can we just talk about where we've got to in the space of a month, Tom,

It is absolutely remarkable. We started this month with FED funds in and around where once seventy five, and we've cut down a hundred and fifty basis points. We've got Quee helicopter money and an initial jobless claims print three four or five million that some people think we might get in the coming weeks as well, in the space of a couple of waste. Tom, Yeah, it's been dramatic. And again, I think the others have tried to make this point, UM, including us and and and I'll try

to make it again. I think what we have to keep in mind is that you know, this is something that that we're forcing, right, We're forcing this right, We're we're we're making people stay home. I mean, it's it's it has a critical idea. You know, if this was a stand you know, standard recessions are are very different than than than what we're living through right right now. Um. You know, this is something in a lot of ways because of social distancing. You know, we have we have

created a dynamics obviously for our health. I mean, it's something we obviously need to do. Um. So again that's why I say it depends how long that goes on for because you can unwind it. Um, It's just this a question of time. The longer it goes, the more damage you're gonna you're gonna leave in its wake. Yeah. Well,

Tom Vinnydale Juda is making a really good point. Hats off to the state agencies for processing all of these claims and the idea that you know, all of these people did file to receive unemployment benefits and they are going to be receiving some income in very short order. Is there any silver lining in that that you can take away? You mean, meaning what the fact that they're

going to be receiving their unemployment insurance benefits. I mean that that basically is long that it's not a huge disruption completely to the point where people won't be able to afford food unless you live on the Upper east Side next to Tom. I mean, you know, far be it for me to um to to you know, judge how other people are going to deal with any situation

that I'm not here to do that. You know, I'm sure that this is going to be extremely painful for for some people, and some people will be able to endure it. I'm just fine. You know that that's for other people to comment on. But what I would say is it's very clear given some of the plans that have been coming out of Washington d c UM that you know, obviously individuals are focused. I mean, they're going to upsize unemployment insurance claims, uh, the the amount that

you can get. They're also going to extend out the period over which you get unemployment insurance claims. So there, there, there's a lot, there's a lot being done. Chairman Palm and NBC earlier this morning speaking to Main Street Tom for Sally Tom, we've been critical of the chairman in the past. Your take on his performance and the Federal reserves moves over the last couple of weeks, it's not need to see some signs of success. Yeah, No, Jonathan

I'm a I'm a fan. I like what they've done, um, you know, and I'm i'm I'm obviously not talking about is today's show appearance. Um, you know, I mean in just terms of the bigger the programs up there laying out there, I think that they were aggressive. Um. You know. They they didn't wait. Um, they had a lot of these teat up already because of the the financial crisis. Um, and so they just started unloading. I mean in a lot of ways. It was funny in a lot of ways.

They put that these some of these programs so quickly. Um. I got a phone call from from one of our front end traders and they said, hey, we don't know what the settlement instructions are for one of these programs. Um. Because the programs were just coming out with in mass and so quick, um that some of the data weren't um easy to find. So I'm I'm a fan. I think a lot of what they have put a lot

of stimulus in place between monetary and fiscal authorities. And and again, if we're right that this thing can actually if we can start to see easing, not not a completely going away, but in easing and social distancing UM by the end of April beginning of May. UM, there's so much stimulus in place, and I think calling for a pretty a pretty good rebound in the second half a year. It's not a stretch what in the second half.

Quite clearly, the FETES objective would be to provide some stimulus for recovery, but in the media term, it's to provide some easy to financial conditions and to really target what's happening with market functioning ill market functioning. Tom. Some of the problems of last couple of weeks, have they eased a lot a little bit. What's your assessment of that? You know, my my assessment speaking with some of our traders is that they're they're starting the process of easing. UM.

There's there, there's no question about that. That That doesn't mean that the problems are gone, but you have to start somewhere UM and and the somewhere as things things seem to be getting better from a from a liquidity perspective, UM, it's not that they're they're they're they're completely healed, but they're they're starting the process of getting better. Top of obvious. My best to you in the team over obviously anti

you and yours as well. Tom always great to get your thoughts on this program or just cough a lot. Let's go this is important. I had a lot of really good emails about coughing. And the good news is they brought in a nurse. Surveillance brought in a nurse and she's from an island self of Manila for one of the tribes, the Manyan tribe, and it's I'm drinking some teeth. It's absolutely undrinkable. I mean, dr Leslie vinjer Murray, would this teeth it's got it's got in its stuff

from the Central Park reservoir and what's kidding? That's it's why your coffee totally drink up any something stronger than that. This morning, let's bring in lens of Leslie Vinja Murray Showery Channel House head of US in America's program, Leslie. Fantastic to catch up with you. The Senator grink on a bill with this guy through the house with these oh absolutely, you know. I think there was a question of whether it would go through without anybody needing to

come back. It looks like that's not going to happen, but it sounds like they will vote tomorrow morning. It will go right through and UM the President Trump will find it office. Is an extraordinary package comes out an extraordinary time. UM. There have been a lot of concessions on both sides have been up. It's bipartisan, you know,

some of the lessons of two thousand and eight. But the Democrats have drawn that have and they've used to push for oversight of that money that's going to be used to you know, to give loans two small and medium sized businesses to to you know, think about helping the airlines industry. The woul have been incorporated into UM, into the package. So I think we're seeing a lot of you know, a lot of concessions because people recognize that there needs to be a response to an economy

that's basically being shut down by this pandemic. Dr Vin Jamura. A lot of eyes are on the United States, in part because it is the becoming quickly becoming the epicenter of the coronavirus, and also because it is the world's biggest economy. There is a question about calling it a stimulus, that that is inaccurate. This is an effort to plug

a bit of the whole. How much of the whole will this plug if this is it, if this is the stimulus, if you want to call it that that we get, how much does it sort of stave off the decline? Well, look, we can't answer that question until we have some sense of how effective the response will be to dealing with the real problem, which you've rightly noted,

is the health crisis caused by this pandemic. And so if we don't have a push on testing, on ventilators, on coordinating the product and distribution of protective equipment that we need in the hospital desperately in New York, in California, in other parts of the United States, if that response doesn't do what it needs to do in a timely way, then of course the economic question is going to come right back to us, because it's a it's a result of of America's drive to actually deal with um, the

the pressure on our hospitals and the pressure on our communities and the people that are you know, staying home not because they don't have jobs, but because businesses are closed. I want to talk also about the state response, but his New York State has come out and slam the bill, saying that it was completely inadequate. The amount that was attributed to New York. Uh, they're basically saying that this

virus is not hitting all regions evenly. What's your sense of that in terms of how much the support was skewed toward different interests, toward different groups or is it sort of a very fair look at the virus, it's impact and how to stop some the decline look. I think the first thing to note is that it is an extraordinary package. We have never seen anything like that.

And the focus on direct cash payments to people who are out of work, the focus on unemployment, the focus on getting supporting businesses so that they can keep people you know, not turning up every day, but they don't have to get rid of their jobs. That if they do that the loans will be you know, forgiven. As there's oversight. This is all extraordinarily important. Of course, there

were lots of interest pushing for different things. We saw the size of the package double and you know, virtually double over the course of you know, several several days. New York State isn't a difficult position, and the need for the medical equipment is the number one concern, and not only the money for it, but actually get firms directing them to put their effort into manufacturing those those products and distributing them in a way that is cognizant

at a very different needs. Right now across the country. The trend, the trend here, the ramp up of this fiscal support is tangible. John has mentioned that, of course, folks over the last number of days, Leslie vin Ja Murray's with us with Chad a mouse. Leslie, you're maybe the most qualified person I can imagine, working out of London, of understanding the social differences of how politicians are approaching

this in America versus in Europe. What's the major distinction of the pandemic debate among politicians in America versus what you observe on continental Europe in the United Kingdom. Well, I mean, I think there are two things. You know, Europeans, you know, it's it's sweeping generalization, but it does hold true have been more committed to national health systems, to

UH responses that are coordinated from the center. UM And in some ways you can argue know America coming closer to Europe, it's moving to the left, moving closer to Europe. And questions of unemployment, unemployment insurance. But the big difference still is that we are seeing a federally driven response responsiveness in the in the U S. And that's very different from what's happening in Europe and Europe it's coming

from the center. The States, the fifty states you know, across the United States are taking very horrent policies that driving resources. They're making good decisions about medical responses, so that we don't see a central response in the same way in the US yet. But I think that's going to change. It's gonna have to change. Dr Benjaburry, thank you so much. Let's Sevenjaburry is with Chatham House joining

us from Maine right now. Karen Mills her service to the nation to President Obama is the twenty three administrator of the Small Business Administration. We're thrilled she could Jonas in the shadow of Bowden College, UH this morning. Karen, Thank you so much for being with us. It is truly an unprecedented moment because of those three point three million claims and the many more to come. So many are linked in and tied to small business. What do

we need to do for small business? What is the urgency given the shock of this statistic, Well, I would estimate that more than half of those three point three million jobs that we saw lost in the last week or two are from small businesses. And the reason is that small businesses have very low cash buffers, and if they have twenty six days of cash on hand and you have to shut the doors, then they don't have any choice. There's nothing coming in and in three weeks

they'll be dead. So they need to let their employees go. And you know, half of the people who work in this country own or work for a small busines nous, So on a normal day, that's half the jobs. But I bet it's more than half of the three point three So, karenly, given what we know from some press reports coming out about the Senate of fiscal stimulus plan, what's in that plan for small business? Well, the good news is that there is a lot in that plan

for small business. In the fiscal crisis in two thousand nine, we actually lost one point eight million small business laws of jobs in the first quarter of two thousand nine and I had to jump up and down in the White House to make sure they're paying attention to small businesses. But not so today, everybody has figured out that this is a crisis. There's three hundred and forty nine billion dollars with a B for loans to small businesses, which will be forgiven if they are used to pay payroll

and rent and UH interests on loans. So I think the bill has it right which get money into the hands of small businesses to keep them solvent. That the eight weeks is the period where you can get loan forgiveness, so they're planning on at least eight weeks in this bill, Karen, The Small Business Administration is sort of like that final scene in the movie of Raiders of a Lost Arc where they go into you know, the cavernous building and try to figure out where the arc is and all that.

There's there's an implied bureaucracy here. Give us the true story of the bureaucracy of the Small Business Administration in Washington. Well, you know, this is government, so it does not turn on a dime. It's more like an ocean liner. But it does know how to get money out to small businesses. And the trick here is that it actually uses three

thousands of American's banks. So there's two questions. Can the banks get going quickly and can the s b A and try inasury make it easy enough to push that money out. Usually there's a whole bunch of gating issues, and this bill takes a lot of them away. I think somebody was smart in that room when they were writing it, because they're removing impediments. I'm I heard Steve miniche and say this should be a streamline process in a week. But frankly, I'm worried, and I'm worried about

the banks. They need to do some things on their end to get the money out, and I'm worried that they won't be motivated to do it quickly enough for the small businesses. So, and Karen's interesting, So give us your thoughts. Hearing you had experience with the two thousand two nine recession, how bad do you think it's going to be for small businesses here over the you know, the next several months and throughout the year. Well, it's

gonna be terrible because their business just went away. And as we said, like individuals, they have very little reserved So if we can keep them solvent for the period of time that they're closed, then we have a chance of bringing them back or most of them back. And one of the good pieces of this legislation is that actually covers sole proprietorships. There's twenty four million of the thirty million small businesses are just one person who runs

a business and that's their livelihood. So they are eligible to pay themselves through these loans and have it all forgiven. I think if we can keep people going, then their business can come back when demand comes back. Nothing the Fed can do to stimulate the economy is going to work until these businesses can open their doors. So it depends a lot on whether it's eight weeks or longer. Karen,

thank you so much. Karen mills with us of course formly with a small business Administration greatly appreciate her ability be with us by today. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.