New jobless claims fall to fresh pandemic-era lows

Sevens Report Research Founder & President Tom Essaye joins Yahoo Finance Live to discuss the latest market action following better-than-expected jobless claims.

Video Transcript

ZACK GUZMAN: This time, for the first time in the pandemic, coming in below 500,000 and better than the expectations economists had, the total number 498,000 versus the 538,000 expected. That was down from 590,000 the week prior. For more on what it says about where we're at in the jobs recovery, let's bring in Tom Essaye, Sevens Report Research founder and president here joins us now. Tom, appreciate you taking the time to chat. What do the numbers say to you about where we're at in this recovery, especially ahead of tomorrow's big jobs report?

TOM ESSAYE: Good morning, everyone, and thank you for having me on. We're continuing to recover, right? I mean, you now have claims below 500,000. This is back into sort of a historically normal range for a slow growing economy. Not the economy we have now, but obviously this is a unique circumstance.

And we also have to look at jobless claims in a bit of a different light than we typically do. Because of all the federal unemployment additional benefits, there is a portion of the workforce that will not go back to work right now, frankly, because they're getting paid a decent amount of money to stay at home and, in some instances, if they feel they need to stay safe. So, there's clearly improvement. And that's a good thing. And we expect it will continue. It should be a very good report tomorrow.

AKIKO FUJITA: How big of a concern, though, is that supply side you talked about? We've heard from a number of companies who've said that it's hard to get some of these workers back right now. If we're talking sort of on the business side of things, you know, how big of a headwind do you anticipate that to be if, in fact, it really is about workers not wanting to return because the benefits of staying home outweigh the risk right now.

TOM ESSAYE: Sure, well, first of all, a lot of these benefits will expire in September, right? So we'll get back to what should hopefully be a much more normal labor market then. But in the meantime, it's a huge headwind. Hopefully, y'all have been able to go out to restaurants. I talk to people who own restaurants all the time. They cannot find people in Florida to come work.

I saw a statistic this morning. 16 million people still claiming some sort of unemployment assistance. Yet many corporations can't find people to fill positions. And as a result, they're not generating as much revenue as they would hope because they can't find the labor. So, this is a problem. It's going to become a bigger problem. And guess what's going to happen? It's going to push wages up, which just adds another tailwind on inflation in the short term.

ZACK GUZMAN: Yeah, I mean, we've been hearing that potentially becoming a problem when it comes to maybe shifting the Fed's timeline and raising rates as well on the inflation front. But we'll get that update, I suppose, very soon. When you look at how it might impact the market, though, how does that maybe counteract maybe some of this cyclical rotation we've seen when it comes to maybe sectors levered to labor costs, like restaurants, as you said, having trouble to attract the workers they need?

TOM ESSAYE: Yeah, I think it's going to put pressure on profit margins, right? So in the cyclical space, I don't think, really, we're seeing the market trade off of, say, future earnings growth. I think you're just seeing a big rotation, and people are looking at, gee. You know, we could put up a 13% Q2 GDP number. I mean, I never thought I would ever see anything like that in this country. So I think you're seeing investors rotate into the cyclicals, your financials, your industrials, your consumer discretionaries, just based on this rising tide, right, of the economy reopening. And that's probably still got a while to run.

But once we exit the summer and hopefully everything's back to normal, we're going to see this market turn back towards the old school, the fundamentals, how much the earnings growth. And I think we should all brace for more volatility. This is going to be a more volatile market over the next six months compared to the last six months.

AKIKO FUJITA: Tom Essaye is Sevens Report Research founder and president. It's good to get your insight today. Thanks so much for stopping by.