Job seekers are queuing at the Miami, Florida job center.
About 1 to 4 million people may have applied for unemployment benefits last week, the largest number ever in such a short space of time.
The number of filings that will be released on Thursday before US markets open is the first indication of the extent to which the labor force is affected by the sudden closure of much of the US economy as a result of the coronavirus pandemic.
“It’s the tip of the iceberg and they’re going to be ugly. It depends on the speed at which claims are filed and the next week is likely to get worse,” said Diane Swonk, chief economist at Grant Thornton. Swonk estimates that 1 to 2 million applications were submitted in the week that ended on Saturday, a significant jump over the slightly increased 281,000 that were submitted the previous week.
“It is closely monitored how violent the job standstills have been,” said Jon Hill, pension strategist at BMO. “You have 15.8 million people working in the leisure and hospitality industries, and you just closed the industry.”
The speed at which the economy shuts down is unprecedented, and economists typically see a slow rise in weekly unemployment claims as an early warning of an economic slowdown. But this sudden, unprecedented surge, whether its 2 million as expected by Barclays or Citigroup’s 4 million forecasts, signals that the unemployment rate also rose from 3.5% in February to an estimate of up to 10% from the half-century low of February. will rise.
California Governor Gavin Newsom said Wednesday that 1 million people filed claims in his state on March 13.
“There’s nothing like it, so we need to expand and support unemployment insurance and extend it to a larger group of people,” said Swonk. “This will be the first shock and awe. … It’s terrifying, but that’s why nobody will tell Congress that they have done too much.”
Congress is in the process of adopting a $ 2 trillion stimulus package.
“This shouldn’t be an economic number causing the stock market downturn. Most economists have already written off the second quarter as Great Depression-style economic growth,” said Chris Rupkey, chief financial economist at MUFG Union Bank. He said it would not be surprising if unemployment temporarily rose to 10 million as the hospitality industry announced it would lose 5 to 7 million jobs.
“Whether job losses will rise to 3 million unemployment claims this week and 4, 5 or 6 million in the coming weeks is pretty unimportant,” he said. “Probably the most immediate number that matters is the daily number of coronavirus cases. That is probably more important.”
Economists now expect the economy to enter a recession and bottom in the second quarter, with many predictions of a double-digit record decline in GDP. The economy is expected to be less affected or recover in the third quarter and then recover in the fourth quarter.
When will the jobs come back?
The speed at which employees can return to work and the economy recovers depends on how quickly the virus can stop spreading. The duration of the shutdown and the loss of jobs also determine how many of them become permanent.
Swonk said that with 40% of the US now in shelter-in-place mode, it will be difficult for those who have not been unemployed to manage their return to work. “The problem is that when you start up, it’s not like opening a cone,” she said. She added that the return to work could be staged and could require testing and other measures. Some companies may reopen, but with fewer employees.
“With the passing of these tax support laws, attention will shift back to two things. Does it work to prevent large-scale layoffs? And do the quarantine measures work?” said Michael Gapen, Barclay’s chief economist in the United States. “If there are layoffs but it doesn’t look draconian, if it looks like in two to three weeks, most hot spots are under control, then it’s a better perspective. Then it’s a significant but temporary event for activity.”
Gapen said he expects GDP to decline 7% in the second quarter, but if the virus is heavier, it could go down 10%. For the same reason, he said, unemployment could be around 7% or even 9%.
Gapen expects 2 million claims this week. The damage number published on Thursday reflects the submissions up to last Saturday.
“The highest level they were ever at was just under 700,000 in 1982. At the height of the global financial crisis, they were approaching 650,000,” he said.
“Surely, 10% unemployment is a forecast that has a great chance of becoming a reality. But I still don’t know what it means because it is still a coronavirus recession. There is no real estate bubble that bursts. There is none The bubble burst and signaled the underlying problems, “said Rupkey.
“It is true that the economy has caught a cold from this deadly virus and we are waiting for the symptoms to subside. The theory is that it could be the deepest recession in terms of production and job loss since the Great Depression, but it could which is its fastest downturn. If the virus stops spreading and the self-isolation strategy works, it’s more a question of whether the number of positive cases will be limited for another week? Five weeks or 12 weeks? “