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Zillow Market Pulse: June 18, 2020


Note: The Market Pulse team will be off Friday, June 19, in observance of Juneteenth. We look forward to resuming our regular publication schedule on Monday, June 22.

June 18, 2020

Another week, another couple million unemployment claims. More than 100 million loans are enrolled in some kind of relief program. And Goldman Sachs' economic outlook improved, but with caveats.

  • Another 2+ million jobless claims were filed last week

    • Combining headline figures and claims made through the Pandemic Unemployment Assistance program, 2.2 million claims for unemployment benefits were filed last week.
    • For the 13th week in a row, the number of claims doubled the worst week of the Great Recession.
  • 100 million+ consumer loans are getting some kind of assistance

    • 79 million student loans had their monthly payments deferred or were receiving other forms of relief as of May 31, according to the Wall Street Journal, up from 18 million at the end of April.
    • The number of auto loans and personal loans receiving relief doubled from April to May.
  • Goldman Sachs: Outlook improves, but severe risks remain

    • Goldman Sachs now expects Real GDP to fall by 4.2% on an annual average basis in 2020, down from 5.2% previously.
    • But a lack of additional fiscal support and a significant uptick in COVID cases would derail the recovery.

 So what?

With the pandemic entering its fourth month, job losses continue to mount at a historic pace. For the thirteenth straight week, more than 2 million claims for unemployment benefits were filed last week, when you combine the headline numbers and claims filed through Pandemic Unemployment Assistance (PUA). But while the job losses continue to accrue, parts of the labor market are hiring: Job openings appear to be trending upward and 2.5 million jobs were added to the market in May. As governments continue to ease restrictions, businesses are continuing to reopen which means that workers are slowly returning to the workplace. But today's report, and the sustained level of unemployment claims, suggest that the optimism brewing from the May jobs report has not yet been fully realized throughout the broader labor market. While jobs are returning, there continue to be a huge number of layoffs happening simultaneously. Unfortunately, the businesses that are laying people off now are likely doing so because of a longer-term business decision, rather than just a temporary relief of their labor costs.

This enduring wave of layoffs has left many in a position where they cannot keep up with regular debt payments. Wall Street Journal reporting found that more than 100 million consumer loans had been enrolled in some sort of relief program, such as forbearance or deferment, as of May 31. Student loans were far and away the loan type with the most accounts receiving relief (79 million as of May 31st, up from 18 million at the end of April), but the number of auto loans and personal loans with deferred monthly payments both also doubled in the month of May. While much of these increases are attributable to government policies set up to provide penalty-free support for those in need, this development is not without some risks. Repayment plans associated with some forms of this relief are still not clearly defined, which means borrowers could be left in a vulnerable position once the relief runs out. What's more, borrowing conditions will continue to remain tight going forward, as lenders continue to struggle to weigh risks when initiating new loans. Most of all, this sharp increase in relief participation in May suggests that millions of debt-laden borrowers are currently unable to meet some/all of their monthly obligations, a fact that will likely worsen if expanded unemployment benefits expire at the end of next month.

The lack of an extension in unemployment benefits also factors into how large banks are considering the path forward for the economy. In a revision to their GDP forecast released late yesterday, Goldman Sachs upgraded their outlook for the economy in 2020 and 2021, but were quick to point out the substantial remaining risks to their outlook. Chief among these risks was a potential flare up in COVID-19 case volume – which the bank expects would greatly hinder the economy's recovery, and even possibly set up a second, more modest downturn that reaches a low point in early 2021. The pending expiration of extra federal jobless benefits also weighed heavily, and was deemed the most imminent risk to recovery. Should additional fiscal policy not be approved, the banks stated, disposable income will fall sharply and the economic recovery would stall and even retreat. The forecast revision was the latest example of the fact that while the recovery has gathered steam in the last couple months, the road ahead remains long and significant risks remain.


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