Why Danielle DiMartino Booth thinks jobless claims might be artificially low
Is the Fed missing this simple signal?
I went spearfishing for the first time ever this morning (didn’t get anything), and when I came home I said hello to my dog then hit play on the latest episode of Palisades Gold Radio featuring Danielle DiMartino Booth. About a third of the way through the interview Danielle made a really interest point.
If an employee loses their job and they have a severance package, that employee is ineligible to apply for unemployment. Let that sink in. Tens of thousands of employees have lost their job in the last couple of months (track jobless claims with this interesting website that Danielle recommended), but their dismissals will fail to register in the unemployment figures if they have a severance package.
The small tech company I work for recently laid off 20% of its workforce and everyone received 4 weeks of severance. Those former co-workers (none of whom I’ve ever met since my company is 100% WFH) won’t be eligible for unemployment until mid-December.
For a bit more color commentary, here’s Danielle explaining this phenomenon in her own words (see video below, starting at 17:15).
“Most of the states out there, if you’re receiving a severance package, in other words not a lump sum but you’re getting paid out over a three or four month period, that precludes you from applying for unemployment insurance. You can only do that after the company’s money runs out or you’re effectively double dipping.
That’s one of the reasons that we’ve not seen the layoffs that we’ve read about, in Silicon Valley or at Stanley Black & Decker in Connecticut; they laid off 1,000 people in their finance department all of whom were paid severance. We’re not seeing those firings manifest in initial jobless claims, which J Powell can hide behind and say the labor market is still very strong, because they can’t apply for unemployment insurance until their former employer’s money runs out. That’s why I keep saying that we’re going to see an employment rate shock, the same way other indicators like housing sales have fallen off a cliff.”
I don’t make investment decisions based on unemployment numbers. I’m not going to buy fewer energy stocks because I think unemployment could shoot up in December. However, these numbers effect everyone in the market because unemployment has a direct impact on Fed actions. Also: people are losing their jobs, which sucks!
If we see a big spike in unemployment claims out of nowhere, as Danielle has suggested is possible, those unexpectedly high figures could be a factor in forcing the Fed to knock off the rate hikes. Just one more data point to consider, as we try to make good decisions against a background of resplendent uncertainty.
