May 21, 2020
Initial unemployment claims for the week of May 16 fell 249 thousand to 2,438 thousand. Unfortunately, that is still a very large number of people. In the past 9 weeks 38.6 million Americans have lost their jobs. Clearly, the measures put into place by Trump and many governors have stopped the economy dead in its tracks. The 4-week moving average of claim dropped to 3,042 thousand in the most recent week.
The number of people receiving unemployment benefits climbed by 2,525 thousand to 25,073 which is, effectively, the total number of people that have been laid off since mid-March when the current shutdown began. The insured unemployment rate has continued to climb to 17.2% (before the shutdown started it was steady at 1.2%.
On May 8 we learned that payroll employment fell by 20 million workers in April. Previously, the biggest single month’s decline was 804 thousand. To put those numbers in context we lost 8,500 thousand jobs total during the 2008-2009 recession. We expect payroll employment to fall another 5 million workers in May. In two months we could lose 3.0 times the number of jobs that were lost in the entire 2008-09 recession. Given that the economy shed 20 million jobs in April and, presumably, another 5 million in May, look for the unemployment rate to climb from 4.4% to 17.0% in May. The peak unemployment rate in the 2008-09 recession was 10.0%.
We expect to see a second quarter decline in GDP of 60%. To put that in context, the biggest single quarter decline in the 2008-2009 recession was 8.7%. Not even close. Huge. But that is the second quarter.
Where we go from here depends upon how quickly the virus can be brought under control. We are seeing hints that the pace of the virus is beginning to slow. There is faster than expected progress in developing a vaccine with a possibility that something could be available by January of next year. There are indications that some products which can actually help patients recover from the virus will soon be available.. These developments should soon bolster consumer and business confidence. The stock market has already recovered more than one-half of its earlier decline. If we get some hint that the virus is getting under control, the $2.5 trillion of stimulus money will provide a dramatic boost. As a result, third quarter GDP growth could rebound by 60.0% with an additional 7.0% gain in Q4.
The economy almost certainly fell into recession in March. With further declines in April and probably May. But with the fiscal stimulus money being disbursed the economy should turn upwards by June. If that is the case it will be a recession that lasted just 3 months — less than one-half the 8-month duration of the average recession.
Stephen Slifer
NumberNomics
Charleston, SC
Dr. Slifer –
I hope you are correct in your optimistic assumptions, but am skeptical. The restrictions in the US are not as severe as in China, and are not enforced. The rate of increase in confirmed cases in the US (based on the Johns Hopkins Coronavirus Resource Center data) has been running at 40% per day and only in the last three days has any decrease been recorded – to about 25% per day. The curve is bending down only slowly, and it seems unlikely it will be flat by the middle of April. Even when the rate of increase is controlled, if less than half of the population has been infected (and acquired immunity), then a relaxation of restrictions may lead to a resurgence of the infection, requiring even longer quarantine. Lastly, if it goes on for a few months instead of a few weeks, bankrupticies and other business failures, as well as the worldwide collapse in trade, seem likely to impede a robust recovery. I know nothing of economics, but the other factors here seem unlikely to reverse soon.
Hi Frank.
Thanks for sharing your thoughts. Everybody seems skeptical. Most people have responded are in that camp. I seem to be the only relative optimist out there.
Your concerns are all valid. Given that Trump did not declare an emergency until March 13, and many of the governors did not impose stay at home orders until this past week, I suspect it is still a bit too soon to expect some improvement. I am hoping my mid-April time table is not too far off the mark. I keep going back to the China data. They imposed stringent controls towards the end of January, saw hints of improvement by mid-February, and had the thing well under control by mid-March. And, at least thus far, as their economy starts opening up they have not seemed to experience any resurgence of the virus. Not exactly sure why we should be significantly different here, but almost everybody questions my timetable. Who knows? everybody else could certainly be right.
I need this to be a short-term event.
If it goes on a lot longer than I envision, I certainly share your concerns. Businesses, particularly small businesses have contingency plans and lines of credit to hold them over for roughly a month. Longer than that we will have a lot of problems. I think it raises a legitimate question whether the economic fallout from the so-called cure will turn out to be worse than if we had simply let the virus run its course and opted instead for a more targeted approach — isolation and help for the elderly, encourage and provide incentives for manufacturing firms to ramp up production of ventilators, masks, and protective gear for health care workers, and financial assistance for those directly impacted by the virus. We do not need $1,000+ checks for every American
As always, I guess we will see. Stay healthy.
Steve