• Oops!
    Something went wrong.
    Please try again later.

First-time unemployment claims rose last week

  • Oops!
    Something went wrong.
    Please try again later.

The Labor Department reports 861,000 Americans filed new unemployment claims the week ending February 13. Frances Stacy, director of portfolio strategy at Optimal Capital, joins CBSN to explain what the latest numbers mean for the state of the economy.

Video Transcript

VLADIMIR DUTHIERS: As the nation continues to struggle through the pandemic, the job crisis is also still taking a heavy toll on millions of Americans. According to the Labor Department, another 861,000 Americans filed for first-time unemployment benefits last week. That's up 13,000 claims from the previous week and could be a negative sign for the economic recovery.

So for more on this, let's bring in Frances Stacy, the director of portfolio strategy at Optimal Capital. Thank you so much for joining us again, Frances. Let's get into the latest numbers. How does this week's report reflect on how the US is handling the pandemic? I felt like the last couple of times we spoke to you, there was sort of a little bit of a downward trend. But now, it looks like we're ticking back up again.

FRANCES STACY: Yes, definitely. And the thing is is that this is where we've kind of hit our wall. This is the damage from the pandemic that we're going to have to reconcile with moving forward. We have 6.7% unemployment rate. And we're going to have to see how that sort of surfaces out.

Most of these jobs are really still in leisure and hospitality that are really where people are just not getting reemployed and businesses are closing and businesses are shutting down. And so that's kind of interesting to see which of those businesses will survive and which are going to be able to reopen.

And I think, unfortunately, a lot of them will fail. And that will make the unemployment and the new claims and the problems that we have from the pandemic persist.

VLADIMIR DUTHIERS: So Frances, long-term unemployment is increasing. Almost 40% of unemployed workers have been out of a job for at least six months. And it brings back memories of unemployment at over 45% in 2010 after the recession ended in 2009. What are these rising numbers mean for the economy today?

FRANCES STACY: Well, similarities and differences. Interestingly, when we came out of the financial crisis, even though the markets bottomed out in March of 2009, obviously these numbers lingered much longer. And actually, some of these numbers didn't fully go down until 2019. And most of the added jobs to create the record amount of unemployment-- the record unemployment rate was from small businesses.

And unfortunately, small businesses certainly did get wiped out in the financial crisis, but I think it's going to be interesting to see because I think, actually, small businesses have been wiped out even more severely during COVID. And so I think that it's going to take even longer this time around in order to get those jobs back.

Because it's interesting, you know, you had a lot of quantitative easing. You had a lot of support from monetary policy. And it took that long for some of those jobs to come back, 10 years almost. And now, you've had so much stimulus, right, which is going in to pump up the asset prices in the markets, but how long is it going to take for that to really trickle back down into the real economy? It's going to take a long time.

ANNE-MARIE GREEN: So speaking of the stimulus, as you point out, people have been unemployed, some for a very long time, some on and off over the last year. And they're talking about, I think, a $1,400 check. And they're kind of debating as to whether what sort of household cap, in terms of income, there should be. Should it be 50? Should it be 75 for individuals, whatever? All that stuff. But $1,400, what sort of a difference could that make realistically when we look at where we're at in this economy?

FRANCES STACY: Well, $1,400 for somebody making $75,000 a year is not going to make that big of a difference. But $1,400 for people who can't afford to eat, are in a bread line, can't pay their bills, that's obviously going to make a huge difference. And I'm in favor of actually targeting this to the people that are suffering the most. It looks like this is going to come up for a vote in the House on January 26, and they're hoping to get it through the Senate as quickly as possible. It was nice to see the impeachment hearing was-- was very efficient and ended quite quickly in order to focus on this.

Most of the extended unemployment benefits that they extended for 11 weeks that were set to expire at the end of 2020 expire March the 14th, as well as the additional $300 a week. So the damage in not getting to these people with extra stimulus is the fact that they're going to start defaulting on their debts when the eviction moratorium-- when people can be evicted, they're going to be evicted. And that means that they could potentially move into the homeless realm. People who have mortgages and forbearance, when that comes and they can't pay those for-- they can't pay that, then you're going to have a lot of defaults in the credit markets.

So it's kind of interesting how disconnected Wall Street is from Main Street. But when Main Street starts defaulting on their debt, it's actually going to affect Wall Street.

VLADIMIR DUTHIERS: So then, the question becomes, Frances, how long do you believe it will take for the economy to fully recover? Are we still-- is the United States economy still strong? Or are we in danger of weakening to a point where the recovery might be a lot more painful than we had previously considered?

FRANCES STACY: So if we're talking about GDP and inflation, we're rapidly getting there. If we're talking about the unemployment picture and jobs, I think it's going to take a decade. And that's the divide. The thing that we have going forward is this wealth gap issue, which is creating all of the populism in our politics. And that is the problem of our generation is this wealth gap.

And it's-- we're going to see it in the recovery, where some people have already made more money than they lost in the stock market for COVID, and yet, there are some people-- you know, the bread lines are increasing and more people are at risk of becoming homeless. So I think when policymakers look at this, I think there's also, you know, such an opportunity to look at how to close that gap.

I mean, I certainly have ideas about this. Economists have ideas about this. Because these types of wealth gaps are the things that sort of preceded the fall of Rome, preceded the French Revolution. So you know, they're just not good omens. And I think that that's going to have to be the focus going forward, because we have to confront the fact that some of these people will not get their jobs back for a decade, if ever.

VLADIMIR DUTHIERS: Hmm.

ANNE-MARIE GREEN: A decade, wow.

VLADIMIR DUTHIERS: That is troubling.

ANNE-MARIE GREEN: Wow.

VLADIMIR DUTHIERS: Disturbing, to say the very least.

ANNE-MARIE GREEN: Sobering.

VLADIMIR DUTHIERS: Yeah, it really is. And it just-- you know, it sort of talks-- it speaks to what we've been talking about all through this pandemic, Frances and Anne-Marie, which is, you know, the decisions that lawmakers make in retrospect, they-- the decisions to lock down or not to lock down, I mean, they all have real ramifications. And in many instances, they can be justified. But when you see the long-term lasting effect on how this is going to affect people's lives, their economies, the lives of their children, you know, it's-- it's going to be a tough road on the way back.

ANNE-MARIE GREEN: But you know, also, Vlad, what Frances is talking about when she talks about the wealth gap, you know, this was stuff that was happening before we got to this point. But once again, you see the pandemic accelerating, exacerbating, like, the weaknesses.

And I've always said, you know, when you look at the wealth gap and you see that increasingly black and Brown people in this country are-- are amassing less and less wealth yet continuing to grow in population, you're going to have a problem. It's not just a-- it's not just an issue for black and brown people. It's an issue for this whole country. You can't have a growing population that is increasingly being kept away from wealth.

VLADIMIR DUTHIERS: Yeah, no, it's a--

ANNE-MARIE GREEN: There's not a-- sorry-- an imbalance there.

VLADIMIR DUTHIERS: Yeah, and Frances, you've been-- you've-- I mean, I think you raise this every time we talk. You know, we figure out a way to talk about this wealth gap that exists. And even when we were earlier talking about the life expectancy, already, African-Americans--

ANNE-MARIE GREEN: Yes.

VLADIMIR DUTHIERS: --and Latinos had a lower life expectancy than white Americans. And now, the number is getting-- in other words, life expectancy is decreasing at a greater rate for those people than it is for white Americans, even though for white Americans, it's also decreasing.

So you know, even when it comes to our lives as Americans, we have this imbalance that exists. And what has happened because of the pandemic, those imbalances have sort of been laid bare before the American people. And the question is, how do we address it? How do we fix it? Frances, always great to talk to you. Thank you so much. Really, really important stuff.