Yahoo Finance's Brian Sozzi, Alexis Christoforous, and Brian Cheung discuss the weekly U.S. unemployment claims, and the Government's second GDP reading with Michelle Girard, NatWest Co-Head of Global Economics.
ALEXIS CHRISTOFOROUS: Well, as investors wait for what's expected to be a historic speech from Federal Reserve Chairman Jerome Powell this morning, they have fresh economic reports to pore over. So let's get to it. The number of Americans applying for unemployment benefits fell to 1 million last week. It's a sign that companies continue to lay off workers even as the economy shows signs of recovering. Since the pandemic-induced lockdowns, nearly 58 and 1/2 million people have filed for jobless benefits.
And the government's second reading of Gross Domestic Product shows the economy contracted at a rate of negative 31.7% from April to June. That is actually an improvement from the first estimate of negative 32.9%, but it's still pretty dismal.
As you can imagine, stocks taking a bit of a breather after another record-setting day for Wall Street. Futures are off their lows of the morning. We've got Dow futures down 27. NASDAQ futures off 26 after another record close. And S&P futures down about six points. Another record close for that index yesterday as well.
Of course, these latest economic numbers will certainly be on the mind of Fed Chair Jerome Powell when he speaks in just a few minutes at the Fed's annual Jackson Hole conference, which, of course, is being held virtually this year. We're going to bring that to you live as soon as he begins to speak. Our fed correspondent Brian Cheung is with us this morning, along with Michelle Girard, co-head of global economics at NatWest. Good morning to you all.
Michelle, I'd like to start with you and with today's economic numbers. Let's take a look at those jobless benefits. What does that number mean to you? Is the job market healing, albeit slowly?
MICHELLE GIRARD: You said it exactly right, Alexis. It is healing, albeit slowly. You focused on the initial claims numbers, the number of new people filing for unemployment benefits. We're also watching the continuing claims numbers closely. That's the number of people who have already filed and who are receiving benefits.
And that is slowly retreating, which is a good sign. It means people are getting jobs, even while others are losing them. On net, we're seeing improvement.
And, of course, as we look ahead to the employment data for August that will be released next Friday, I think these data are consistent with our expectation. We will see another gain in payrolls of perhaps close to 2 million. So we are seeing improvement.
But, as you said, even with that 2 million gain, if we get that in August, we'd still be down 10 million jobs since the pre-crisis levels. So again we're improving. But we still have a good ways to go.
BRIAN SOZZI: Brian, this market is priced for perfection. Will they get a perfect speech from Jay Powell shortly?
BRIAN CHEUNG: Well, for what it's worth, these type of speeches at the Jackson Hole conferences are quite high level, very academic in nature. However, we do know that Chairman Powell used his speech last year to address the topics du jour, if you will, which at the time was the trade war between the United States and China. But with regards to the speech that Chairman Powell will be making today, all we know so far is that the title of this speech has-- will concern the Federal Reserve's Framework Review, which is something that the Federal Reserve have been doing before this COVID-19 crisis, looking at ways that it could maybe tweak its approach to its 2% inflation goal.
So it's likely that the Federal Reserve chairman will provide some more color on that, which could be a very wonky and in-the-weeds, perhaps academic exercise. It's possible he could use the speech as well to address the COVID-19 crisis as well. But again, with these types of speeches in Jackson Hole, he's speaking to his colleagues at the FOMC, at the Federal Reserve, in addition to those kind of inside of that sphere, will usually like to focus on things like r-star and u-star, not so much typically where the economy is going right now in this present time. But again, we'll be watching for that in just a few minutes. It'll be interesting to see what he has to say.
ALEXIS CHRISTOFOROUS: And Michelle, one of the things he is expected to say, Jerome Powell, is that the Fed is looking at raising their inflation target. And can you help us understand why that might be? I mean, the average-- to the average person, they might find it absurd that the Fed would want to raise the cost of living, especially during a pandemic. Why are they worried about too little inflation? And why would they want to raise that target higher?
MICHELLE GIRARD: Well, what Brian talked about is this-- the topic of the speech is the monetary policy framework. And that's some work, as Brian mentioned, that the Fed has been doing all year. They're looking at how they approach monetary policy and this idea that having a 2% target, which would mean that if you have an inflation overshoot, they need to raise rates, slow the economy down, to bring inflation back in line.
But what the Fed is thinking about is we've had a period now four years where inflation has been too low. They haven't been able to get inflation up to even 2%. And I think what they're considering is to create a situation where they have flexibility by shifting, instead of a 2% target, to an average of 2% over time, so that if you have a circumstance where you've got inflation below 2% for an extended period, you can allow an offsetting period of inflation to run a bit higher without having to immediately respond to raise interest rates and try to slow the economy down.
So that's the expectation of the direction that the Federal Reserve is headed in terms of kind of changing its overall approach. And in the end, it would suggest for most that interest rates will be able to stay low, supporting the economy for longer, even if the economy does pick up some steam.
ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Michelle Girard, co-head of global economics at NatWest, thanks so much for being with us this morning. We appreciate it.
MICHELLE GIRARD: Thanks for having me.