US Unemployment: Blame It On The City

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US Unemployment: Blame It On The City

Two items today:

#1: The latest weekly data on US mutual/exchange traded fund money flows shows that retail investors can’t quite make up their minds about domestic stocks. The information here is courtesy of the Investment Company Institute (link below):

  • For the week ending June 16th (the most recent report), US fund investors added $21.3 billion to their holdings of domestic equity investment products.
  • That’s more than May’s average weekly inflows ($3 bn) and on a monthly run-rate basis ($84 bn/month) is stronger than March’s 2021 YTD record of $53 bn of inflows.
  • Readers may recall that last week fund investors redeemed $13.6 bn out of US funds, an outsized level of redemptions versus the prior 4-week average of $2.5 bn of inflows.

We’re used to seeing fund flows seesaw a bit, but these are exceptional shifts in what is turning into an exceptional year. As we mentioned last week, 2021 has been a strange time for equity fund flows because they’ve been positive. For most of the last decade fund investors sold their US equity holdings, month in and month out. That’s why the 2010 – 2019 US equity rally was called “the most hated bull market in history”.

Also worth mentioning from the data:

  • Fixed income fund inflows have slowed down considerably in recent weeks. Inflows averaged $74 bn/month from January – April 2021. In May, they were $38 bn and June’s run rate is similar at $40 bn.
  • Commodity fund (mostly physical gold) inflows continue. Last week’s purchases totaled $537 million, up from the prior week’s $346 million. These only turned positive in May after 6 months of outflows, but the trend is continuing.

Takeaway: netting out the last 2 weeks of US equity fund flows puts the June MTD at +$7.7 bn, which we’d put in the “win” column as far as an indication that retail investors still want to allocate incremental capital to domestic stocks. We’ve been skeptical that the inflow trend which started in February 2021 would persist, but it has. At the margin that’s bullish, but we’ll keep an eye on future weeks to see if this trend has further staying power.

#2: May’s US state/local unemployment data was out today, and it continues to show just how geo-specific American joblessness remains:

  • May 2021’s national unemployment was 5.5 percent.
  • 11 states have unemployment below 4 percent, traditionally considered “full employment”: New Hampshire, Nebraska, Vermont, Utah, South Dakota, Idaho, Alabama, Kansas, Montana, Iowa and Wisconsin.
  • Another 19 show unemployment rates between 4.0 and 5.5 percent, which is where the national rate was as recently as 2017: Indiana, Minnesota, North Dakota, Oklahoma, Georgia, Missouri, Arkansas, Kentucky, Virginia, South Carolina, Maine, North Carolina, Florida, Michigan, Ohio, Tennessee, Washington, Wyoming, and West Virginia.
  • A further 11 are running between 5.5 and 7.0 percent, which is similar to where US unemployment topped out in the early 2000s recession (June 2003, 6.3 pct): Rhode Island, Delaware, Oregon, Maryland, Massachusetts, Mississippi, Colorado, Texas, Alaska, Arizona, and Pennsylvania.
  • That leaves 9 states above 7 percent unemployment (i.e., still quite high): Illinois, Louisiana, New Jersey, Connecticut, Nevada, New York, California, New Mexico, and Hawaii.

That last tranche tells you all you really need to know about US unemployment: California, Illinois and NY/NJ/CT are the highly populous problem areas lifting the national jobless rate. The common factor is each has at least one major US city either within the state or nearby. And these are where unemployment remains a problem:

  • New York City May 2021 unemployment rate: 9.8 percent
  • Los Angeles May 2021 unemployment rate: 10.1 percent
  • Chicago May 2021 unemployment rate: 7.9 percent

Takeaway: urban employment doesn’t get as much attention as other US labor market narratives, but it really should. It explains, for example, why US job growth has been lackluster and will continue to be so. Until America’s largest cities are back to pre-pandemic routines, we simply will not see a pre-pandemic labor market. From our vantage point of midtown Manhattan, our best guess is that NYC won’t be back to 2019 unemployment levels (3.9 pct) until well into 2022 at the earliest.

Sources:

ICI Money Flow Data: https://www.ici.org/statistics

State Level Unemployment: https://www.bls.gov/web/laus/laumstrk.htm