The Two Sides Of Stimulus: Labor And Profits.

Initial claims for unemployment dropped below 700,000 for the first time since the Pandemic began. While Corporate Profits surprisingly fell by more than 3%. Both reported after this article was written.

Well, It's Day 2 of the Jerome and Janet show. As Jerome Powell, Chairman of the Federal Reserve, and Janet Yellen Treasury Secretary both testify, today before the Senate Committee on Banking Housing and Urban Affairs.

Yesterday, as you'll recall this duo spoke before the House Committee on Financial Services. The topic today, as it was yesterday, is the progress of the 2020 Stimulus Package, otherwise known as the CARES Act. The Corona Virus Aid and Recovery Act.

And the timing couldn't be better, because in just a few minutes we will get two reports that will detail the two sides of these stimulus programs. One side wildly successful, the other not so successful.

Today we will have the latest report on Corporate Profits, and the weekly report on unemployment. First to be announced will be corporate profits, and here it’s apparent that the stimulus programs have been wildly successful. It may surprise you, as it certainly did me, that the last reported quarter, it was the third quarter of 2020, reported an all-time record in Corporate Profits. At 2.1 Trillion dollars in profit, Q3 of last year surpassed Q4 of 2019 the last quarter before the pandemic struck, by $100 billion dollars.

Quite a feat don't you think?

Profits, in the midst of the Pandemic actually exceeded the last quarter of profits BEFORE the Pandemic even began. The answer to this puzzle is, of course, that the funds earmarked especially for big business, hit their target. And large corporations were able to take many of those funds directly to their bottom line. Remember the CARES Act targeted fully half a trillion dollars to these industry giants.

So, as I said in just a few minutes the latest report for Q4 2020 Corporate Profits will be released. The Street expects that this report will build, but only slightly upon the last level. Street expectations are a 2% gain here. So, that would be yet another record in Corporate Profits. A dramatic success for the CARES Act and big business.

Not so for Labor.Each Thursday the US Department of Labor reports on the number of initial claims for unemployment. These are workers who are newly out of work and are now applying for unemployment insurance.

So this is not the total number of unemployed, which Janet Yellen estimated yesterday to be over 10 million. No this is the number of people who just this week are being added to, the unemployment roles.

And to put this into perspective EXCLUDING the 2008-09 Recession we had not seen initial claims exceed 400,00 per week since way back in 2003, 18 years ago. And for the 5 years going into 2020, we had not seen initial claims exceed one quarter million.

But since March of last year, it's been an entirely different story. After peaking at 6.8 million claims on March 29, 2020, a number so large that it overwhelmed the Unemployment Offices across the country. We have not seen unemployment claims lower than 700,000 per week.

A level nearly three times higher than where we were just before the Pandemic struck. Now each week for the past couple of months, there has been a group of optimistic analysis who have predicted that this will be the week we break that 700,000 level. But each week they and the rest of us have been disappointed with initial claims coming in well above that level.

Hopefully, this will be the week that changes.

But no matter how you slice this. This level of unemployment is a conspicuous failure in the entire Stimulus Program. Literally the fly in the ointment. Because what this unemployment number is really saying is that businesses are not returning to normal. It is not back to work in America.

Big corporations, by and large, are not using their stimulus checks to hire back those laid-off workers. Instead, those stimulus funds have been added to their bottom line.

An accounting entry. Which makes profits appear to be healthy, but in reality are NOT due to increasing economic activity.

But instead, is just a one-time shot in the arm.

Start listening to GDP: The Accountant’s Puzzle
Start listening to GDP: The Accountant’s Puzzle