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TS Lombard Economist on the latest jobless claims numbers and economic activity as states reopen

Steven Blitz, US Economist at TS Lombard, joined The Final Round to discuss this weeks jobless claims numbers and his outlook for the U.S. economy.

Video Transcript

MYLES UDLAND: All right, welcome back to The Final Round here on Yahoo Finance. Myles Udland with you in New York. Let's turn our attention now to what's going on in the US economy. For that, we're joined by Steven Blitz, US economist over at TS Lombard.

So, Steven, let's just start with what we've seen the last couple of weeks. Today we finally got a jobless claims print under a million. But it certainly seems that the economy stalled out, kind of at best, late July into early August. Is that how you're seeing it as well?

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STEVEN BLITZ: Yeah, the economy, I mean, based on all the high frequency data, it has. And one of the confusing parts of trying to follow the economy in this environment is that the-- you've got these big numbers that look so good because you're going from a COVID-mandated shutdown to reopening. And what you have to look for underneath that is, OK, how far does this reopening go in terms of economic activity and where you left?

And so look, it's better than-- we're going from 7 million to 900,000-odd on initial claims. Feels great. It is great. It is to be celebrated. But understand that at the worst point in the 2008-2009 recession, weekly claims were 665,000. So the system, the economy is still laying off people at a high recession. So our view is that once all-- everything's reopened to the extent it will be, we will be looking at a recession with about 8% unemployment and all that unfortunately goes with that.

MYLES UDLAND: I mean, I've seen-- in the last couple weeks we spent so much time saying, you can't let the CARES Act expire. It's going to be devastating. Well, it is expired. Obviously the data have not come in yet on just how much harm that does to consumers. But are you concerned about this-- I think some have called it a fiscal cliff of sorts, a benefits cliff that consumers have been walked off? Are you concerned about how that plays as we get into the fall here and we don't see an expected pickup? The market certainly thinks we're going to see a pickup, but we might just see a flat line.

STEVEN BLITZ: Yeah, and that's part of the problem with the big positive numbers, right? So you're sitting in Congress and you're not inclined to spend the money anyway, and then you see this big gain in employment. And then say, you know, that $600 was preventing people from going back to work, and all of a sudden you don't have it. And also you see this big drop in initial claims. So you say, ah-- you see people going back to work. It was keeping people away.

So the reality is, these high-frequency numbers have a lot of volatility to them. It is going to hurt. It is going to hurt a lot of people. That's without question. But let's also think a little bit about-- when we think about the macro numbers, and here's the lie and the difficulty in discerning this. And that is that when we look at who's unemployed, it's basically the very low end in terms of wages of the population, all right?

Leisure and hospitality is still sitting at a 25% unemployment rate. You have a 4% unemployment rate in financial services. And we know that basically as a rule of thumb, 80% of discretionary consumption is spent by the top 20% of wage earners. So when you think about it in those terms, you realize that the loss here is going to be of this top-up is going to be devastating for these people, and it's going to be devastating for the people who are supported by them.

But when you bring it up to the broader macro numbers, understand that retail spending is basically back to where it was in nominal levels earlier this year.

MYLES UDLAND: Yeah.

STEVEN BLITZ: And so we'll get the update on Friday, yet you still have all these initial claims and in total about 30 million people getting-- almost 30 million people continuing to get some sort of unemployment insurance.

MYLES UDLAND: Yeah, and as you mentioned, a very challenging time when you look at the aggregates of the economy versus the individual microstories. Steven Blitz, we'll have to leave it there. US economist with TS Lombard, thanks so much for taking time. It was great to get your thoughts.

STEVEN BLITZ: Thank you. See you soon.