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


Charleston, SC