Cumberland Advisors Market Commentary - Beveridge Curves - btbirkett@gmail.com - Gmail

Cumberland Advisors Market Commentary - Beveridge Curves - btbirkett@gmail.com - Gmail

Beveridge Curves August 23, 2020

David R. Kotok Chairman of the Board & Chief Investment Officer Email | Bio

We’ve prepared a series of Beveridge curve graphics so that readers can see the dramatic changes in the composition and direction of various labor-force-related measures. We are using a visual Beveridge curve approach. The charts (30 of them) are available from our website. Below is the link. https://cumber.com/pdf/Beveridge-Curves-Covid-Aug-2020.pdf   The 30 charts are graphic and dramatic as they depict the largest economic “shock” since the Great Depression era.  That said; we must caution readers, who spend time thinking about the chart series, that data is a problem and clarity is probably not possible until next year.  Our friend Philippa Dunne and her colleagues publish the excellent TLR Analytics and illustrate the data problem with an example. We will quote from their August 20 report.

"Here is what data users need to know about proposed changes to Quarterly Census of Employment and Wages, QCEW, methodology. That’s the hard employment data, source of the benchmark. "Usually about 95% of businesses respond to the QCEW survey. That rate fell in the first quarter and is expected to plummet in Q2.Currently, it’s not clear which businesses just didn’t get around to it, and which have closed their doors, and those empty cells are filled in with prior year activity for three quarters before being dropped, 'essentially pushing into the fourth quarter the declines that should have happened in the first,' in the words of one QCEW statistician. "Importantly, many small businesses never report they have closed their doors, they just stop responding.  State Department of Labor offices follow up with larger businesses who don’t respond in the current quarter, but to get a real-time read on what is happening with small businesses, QCEW statisticians will be using UI records for the individual non-responders to determine if they are still in business. "Additionally, when QCEW employees cannot ascertain the state of the nonresponding business, they will fill in the cell using current responses from similar businesses instead of using year-old data. This will give us much more accurate, if grim, data going forward, and will cascade through personal income and other series that revise using QCEW data.“

We thank TLR for this insightful nugget.     Please enjoy the Beveridge Curve series.