The Cat Whistle

VIPs

• 24 states have elected to opt out of the $300 unemployment plus-up before the September 6th expiry, led by AK, IA, MS, and MO on June 12th; by July 29th, 24 states will have opted out, affecting roughly 6.5 million workers or 42% of individuals currently collecting the benefit

• While 1.5 million workers on state rolls can continue to receive the normal benefit, the same won’t apply to the 4.9 million gig workers in the PUA and PEUC programs; millions of mothers could also see a return to the workforce after being forced out by school closures

• Per data from Indeed, in states where governors announced early exits, job search activity spiked 5% vis-à-vis the end of April in the week following the announcement; the increased job searches were highest in lower-paid sales and hospitality, but also in higher-paid finance

Francis Galton was doomed to play second fiddle. The brilliant scientist you’ve never heard of might have made his mark had he been born into a less star-studded family. Alas, Francis’ grandmother was the sister of Charles Darwin’s grandfather; the contemporaries were half cousins who came of age in the Victorian era. The prodigious anthropologist, explorer, geographer, inventor, psychologist, statistician and sociologist published no fewer than 340 papers and books. He was even knighted in 1909. More mathematically inclined than Darwin, Galton’s most enduring legacy is the idea of regression to the mean, an antiquated notion laid to rest with the advent of the Greenspan Put. Pragmatists predisposed to the hunt would argue that his greatest invention was the dog whistle. Armed with a slide whistle he’d extended to broadcast wavelengths too high for humans to hear, Galton frequented the local zoo to field test his innovation. His finding: it drove the lions nuts. In fact, cats of all sizes heard high-pitched tones the best. The catch was cats’ ambivalence. Unlike canines, they heard, but refused to respond, to the whistle.

Noise we can’t hear will be on full display between now and July 19th when Indiana becomes the 24th state to opt out of federal supplemental unemployment benefits. Call what we’re about to witness a real time economics experiment. There is an immense debate surrounding the federal supplemental unemployment benefit that pays an extra $300 a week to recipients. Not surprisingly, as with so many other matters Americana in recent years, the two sides are split straight down political party lines. A Forbes poll released this week echoes the division. Some 54% approved of states jettisoning the extra benefit. Peel back a layer and you find that 89% of Republicans agreed with nixing the subsidy while only 32% of Democrats concurred. The most intriguing finding is that a majority of every household income cohort, from less than $30,000 to more than $200,000 supported the GOP governors’ decisions.

The first four states to opt out June 12th are Alaska, Iowa, Mississippi and Missouri. What’s notable about the chronologically listed states is the randomness of the unemployment rates. Only three states have rates that exceed the national average of 6.1% -- Alaska, Mississippi, Texas and Arizona. In the other 20 states, the labor market is tighter than that of the nation as a whole.

Because there are a handful of the largest states in the mix, by the time July 19th rolls around, 42% of those who are currently unemployed and collecting benefits, nearly 6.5 million workers, will either be faced with a choice or entirely devoid of cash flow. The average state unemployment benefit is $330 a week. Tacking on the extra $300 raises “income” to roughly $32,000, or double what workers earning the federal minimum wage make.

For the 1.5 million in state continued claims programs, they can choose to halve their incomes. That luxury won’t be afforded the 4.9 million in the programs born of the CARES Act that extended unemployment benefits to workers who don’t pay into state unemployment funds. Allow us to translate: Come summer, it’s going to be a lot easier, faster and cheaper to get an Uber or Lyft driver.

The dotted line in today’s left chart depicts the potential trajectory of claims as each state rolls off the federal program. The end point is, of course, at the extreme. We’re acutely aware of the other swing factor, which the data make plain -- millions of working mothers have been forced out of the workforce due to schools being closed in many of the states not listed in today’s table.

As for those naïve enough to contend that the extra benefits have not acted as a retardant, Indeed data suggest otherwise. In May, the job posting site tracked job search activity, relative to the national trend, as each state announced they would exit the federal unemployment benefits before the expiry date of September 6th. On the day of the announcement, job search activity popped 5% vis-à-vis a baseline of the last two weeks in April. The effect sputtered out after the 8th day.

“Stereotypes need not apply” was the survey’s other message. As you would expect, the increased job searches were greatest for lower-paid marketing, sales, and hospitality & tourism jobs. But activity also rose for finance and doctor jobs.

Per Indeed: “It may be that UI benefits affect search activity not only for recipients but also for others in their household who might work in higher-paid fields. It could also be that state announcements are perceived as a broader public signal about the availability of jobs and the state of the pandemic. Plus, the federal UI benefits include extensions and expansions beyond the $300 weekly supplement that could affect search activity for higher-wage occupations differently.”

Did we mention real-time experiment? As Dr. Gates wisely observes, “There was no playbook for pandemic policy responses. The guiding mandate was: ‘When in doubt, do more.’ That's what both the Federal Reserve and federal government did. Now there are signs that monetary policy has overheated the housing market. The same goes for fiscal policy and the job market.”

As is the case with those agitated lions in the zoo, we suspect the noise level in the housing market will reach a similar high pitch as that of the unemployment data between now and Labor Day.