Sunday, July 25, 2021

Unemployment claims up, because of car chips and the 4th of July

These were not the jobless figures I was planning to see on Thursday morning.
Initial filings for unemployment insurance totaled 419,000 for the week ended July 17, well above the 350,000 Dow Jones estimate and more than the upwardly revised 368,000 from the previous period, the Labor Department reported Thursday… The jobless total was the highest weekly count since May 15 and came amid expectations that the jobs picture will improve markedly as enhanced unemployment benefits end and companies get more aggressive about filling vacant positions.
But there could be a couple of simple reasons for the surprise increase. The first involves the week ending July 10 as being the one with the 4th of July Holiday (which it usually isn't), so that could have lessened that week while raising the following week. On a non-seasonally adjusted basis, new unemployment claims only rose by less than 14,500 compared to the 51,000 on a seasonally adjusted basis.

The other reason has to do with disruptions in the auto industry, with Ford being among multiple automakers scheduling significant shutdowns this month.
Ford vehicle production will once again take a major hit in July as the automaker plans to idle a number of its plants over the next few weeks, according to Automotive News. That list starts with the Ford Chicago Assembly Plant, which will be down the weeks of July 5th, 12th, 19th, and 26th, with a two shift schedule planned for the week of August 2nd.

Next up is the Ford Dearborn Truck Plant, which will run a two shift schedule for the weeks of July 12th, 19th, and 26th. The Ford Kansas City Assembly Plant will be down the weeks of July 12th and 19th on the Ford F-150 side, and down the week of July 19th on the Ford Transit side. The Ford Flat Rock Assembly Plant will be also down the weeks of July 12th and 19th.

The Ford Hermosillo Assembly Plant will be running one of two shifts the weeks of July 12th and 19th, while the Ford Kentucky Truck Plant will be down the week of July 12th and on a two shift schedule the weeks of July 19th, 26th, and August 2nd. The Ford Louisville Assembly Plant will operate on a reduced schedule the week of July 19th.

The Ford Oakville, [Ontario] Assembly Plant will only build the Lincoln Nautilus the weeks of July 19th, 26th, and August 2nd. Finally, the Ford Michigan Assembly Plant will be down weeks of July 5th and 26th, but that closure is due to an unrelated parts shortage that’s not chip-related.

And the jump in jobless claims in this week’s report reflects the July 12th shutdowns in Chicago, Michigan, Kansas City (Missouri side), and Kentucky. The 4 states with those plants had 31,000 additional new claims last week, while the rest of the country saw claims go down.

That doesn't mean we should entirely shrug off that sitiuation, as given the schedule laid out in that story, there will likely be more layoffs in the auto business in the next couple of jobs reports due to these chip issues, and it might lead to a sizable drop in auto manufacturing employment in the July jobs report. But for now, it seems to be a short-term furlough that isn’t going to cause much of a long-term headwind for the overall economy, and it should be restored for the reports in the month following.

On a wider scale, CNBC noted that continuing claims and other unemployment rolls continue to fall in Summer 2021.
On the positive side, continuing claims, which run a week behind the headline number, declined by 29,000 to 3.24 million, a fresh pandemic low. The total was last lower on March 14, 2020, just after the Covid-19 pandemic declaration and as governments across the U.S. ordered businesses to close, sending more than 22 million to the unemployment line.

The total of those receiving benefits under all government programs also declined, falling by more than 1.2 million to 12.57 million. A year ago, nearly 33 million people were collecting benefits.
Extended claims are also down significantly in recent weeks, although some of that is likely due to (red) states cutting workers off.

Now if the auto chip shortage is a longer-lasting item that hits the industry for several months, we have a real problem and you can see the economy slowing. But for now, I’ll need to see more than 1 week of increased unemployment claims or 1 middling jobs report to think that the improvement in the labor market that we saw in the 1st half of 2021 has leveled off.

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