A Chandan Economics analysis of the relationship between Google searches, unemployment insurance (UI) claims, and on-time payment rates indicate that both sentiments for unemployment prospects and actual unemployment may be harmful to on-time payments. Based on this analysis, Chandan Economics expects that outcomes in on-time payments will be tied more closely to labor market performance instead of other stresses stemming from increased cost pressures around the economy.
As displayed in the Chart below, there is a -73% correlation between monthly on-time payments and the monthly average for searches for “unemployment benefits.” That figure jumps to 90% when we compare the previous month’s searches to the current month’s on-time payments. A similar trend is observed for initial UI claims nationally. The data show a moderate -53% correlation between the monthly average initial claims and on-time payment rates.
During the depths of the pandemic, UI and stimulus checks played a role in helping keep renters afloat. A Freddie Mac analysis found that income received from stimulus checks and UI (state and federal) was, on average, around median renter incomes. However, Household Pulse Survey data from April 2021, a month after the last stimulus check, show that 25% of renters using UI benefits to meet spending needs were still behind on rent, with the corresponding figure for stimulus checks being around 16% – suggesting that government benefits can only go so far in supporting renters’ payment ability.
While the labor market has held up reasonably well despite the US entering a “technical recession” between Q12022 and Q22022, splinters are starting to show. Sentiment as indicated by the Conference Board’s Present Situation Index and Expectations Index, decreased by a concerning amount in June and July 2022. The four-week moving average for UI claims has risen steadily to 249K in mid-July 2022 from a multi-decade low of 171K in early April 2022. Also shaking some confidence in the labor market is a wave of layoffs and hiring slowdowns being announced by tech firms.
A rise in unemployment on top of increasing inflation could bring some additional strain to renters. 28% of renters using UI benefits to meet spending needs in the last week are not caught up on rent, according to the latest Household Pulse Survey that took place from June 29-July 11, 2022. AT&T also reports that consumers are paying their bills more slowly.
On the other hand, unemployment indicators (Google searches for “Unemployment Benefits,” "continuing and initial claims," etc.) are still relatively low, household balance sheets remain somewhat robust, and rent tends to be a high priority on the “to-pay” list for consumers. For these reasons, Chandan Economics expects that absent a significant increase in unemployment, we will not see on-time payment rates dip back to the pandemic lows of just above 70%.