This week’s most anticipated data release showed that the number of Americans making first-time claims for unemployment benefits surged by a record 3,001,000 to 3,283,000 during the week ending March 21. For an additional perspective, the nearly 3.3 million headline figure (which does not even include continuing claims) equates to roughly 1 percent of the U.S. population claiming unemployment insurance last week, and basically wipes out the last 18 months’ worth of job creation. The not seasonally adjusted (NSA) number was “better” but still implied that 2,898,450 Americans made an initial jobless claim last week. What is worse is that the above figures may be revised higher and/or next week’s claims print will be much larger. For example, in California the NSA gain in initial claims was 186,809 last week, but Governor Newsom recently said the total is closer to 1 million.
A terrible claims print was widely expected as the U.S. economic machine essentially came to a sudden stop following the recent (and still expanding) efforts to contain the spread of the coronavirus. The Labor Department added that “Nearly every state providing comments cited the COVID-19 virus impacts. States continued to cite services industries broadly, particularly accommodation and food services. Additional industries heavily cited for the increases included the healthcare and social assistance, arts, entertainment and recreation, transportation and warehousing, and manufacturing industries.” Last week’s spike in initial jobless claims makes trying to extrapolate forward anything from this data with confidence near impossible because the jump is like nothing seen before. Most other incoming economic data will be similarly noisy over the next few months, such as next Friday’s release of the March nonfarm payrolls report which could be even harder to interpret. The official unemployment rate (U-3), for instance, will surely surge next week but it could still understate the damage done this month because it only counts people actively looking for work.
Further, some Americans let go as a result of the COVID-19 containment efforts may have yet to start their job search because they believe they will be quickly rehired once the lockdowns are lifted. Moreover, one of the motivations for the "stimulus" package working its way through Congress this week is to provide Americans with a financial incentive to stay at home (aid the containment efforts) rather than going out and looking for another job. The headline payrolls print next Friday should also be noisy because many “essential” businesses have recently announced a surge in hiring that could absorb, even if just slightly, some of the workers let go in “non-essential” sectors. Altogether, the incoming economic data will likely not get much better anytime soon since most reports released in April will be backwards-looking, i.e. describing what happened in March. The real thing to pay attention to will therefore be how quickly the data start to improve once the contagion is under control and the disruptive containment efforts are finally lifted.
Sources: U.S. DoL, FRBSL