April 2, 2020
Initial unemployment claims for the week of March 28 surged to 6,648 thousand after having rise 3,307 thousand in the prior week.. That is the number of people who showed up at the unemployment office for the first time last week. It is a measure of layoffs. Think about that for a minute. In the past two weeks more than 10 million Americans have lost their jobs. To put that number in context, the previous record level of claims for any single week was 695 thousand back in October 1982. We have exceeded the previous record increase by a factor of ten. Clearly, the measures put into place by Trump and many governors have stopped the economy dead in its tracks. Various states cited food and beverage workers, accommodations workers (think hotels and motels), along with transportation workers (think airlines). Some states mentioned retail trade as well as education. The 4-week moving average of claims climbed to 2,612 thousand in the most recent week, but it will go much higher in the weeks ahead.
Next week we will see the employment report for March. It had been increasing by about 200 thousand per month. It is done in the week that includes the 12th of the month which means that this report preceeded the massive layoffs that occurred in the second half of the month. They will not have much impact on the March employment data. No change perhaps? Maybe a decline of 100 thousand?. But the April report (that we will see in early May) we should look for a drop of at least 3,000 million workers. To put that number in context we lost 8,500 thousand jobs total during the 2008-2009 recession. The biggest single month’s decline was 804 thousand. We had four consecutive months where employment fell by 700-800 thousand each month. If we lose 3 million jobs in April, that should push the unemployment rate to about 5.5% from a low 3.5% in February.
We expect to see a second quarter decline in GDP of 20%. Never seen layoffs quite like this. To put that in context, the biggest single quarter decline in the 2008-2009 recession was -8.7%. Not even close. Double that. Or perhaps even triple it.
Huge. But that is the second quarter.
Where we go from here depends upon how quickly the virus can be brought under control. If I am right — and I am basing my estimate to a large extent on what happened in China after it imposed those draconian measures to shut down its economy — suggests that we may see hints that the virus is beginning to get under control here in the U.S. by mid-April, and more clear-cut evidence by the end of the month. Once we see that, the stock market is going to surge. The speed of its recent decline was the fastest on record. If we get some hint of the all clear on the virus, I expect we are going to be surprised by how quickly it rebounds. Once all the electronic trading programs and the hedge funds start leaning in the upward direction, it is going to move fast.
At that point the economy will start to rebound quickly. The food and beverage workers, hotel workers, airline people, will return to work quickly. We expect Q3 GDP to rise 8.7% followed by a 7.0% increase in Q4.
Looks very grim at the moment, but the world has not ended quite yet.
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