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US Labor Market Gets Sick: Jobless Claims Soar

30 March 2020   |  

US initial jobless claims hit a record of 3.28 million last week. For perspective, the previous weekly record for workers filing for unemployment benefits was 695,000 in 1982 (Exhibit 1). From another angle, the latest weekly total is 1% of the entire US population and 2% of the US civilian labor force.

Exhibit 1: US Intial Jobless Claims

Source: St. Louis Fed, as of 28 Mar 2020. Gray bars represent recessions as defined by the NBER.


Nobody can be positive what future weekly jobless claims will look like—it’s not unreasonable to call current circumstances unprecedented, epic, maybe even inconceivable. But a couple of generalizations already seem reasonable. First, initial and continuing jobless claims data will be ugly as long as the US remains in lockdown to combat COVID-19’s spread. Second, such a huge number raises the risk Q2 GDP will be the worst on record in the postwar era, something already under consideration before last week’s release.

As investors try to get a better reading on the economy’s health in coming days, the March Employment Situation report due out April 3 from the BLS will be among the most closely watched reports. However, the monthly employment data won’t reflect what just transpired among jobless claims because that report doesn’t track the goings on across the entire period. Rather, the BLS data come from monthly surveys of employers and households who report on conditions during the week containing the 12th calendar day.

The record-breaking jobless claims data spanned the week ended March 21—a week after the BLS monthly survey period. And at this point, the BLS doesn’t plan to change its normal procedure. So the first pass at March monthly numbers won’t show the initial unemployment spike’s full depth. The report’s average weekly hours worked data may offer better insights as businesses adjusted to social distancing measures and a national state of emergency declaration during the survey period.

The subsequent April employment numbers—released in early May—could be record-setting. The overall impact will likely be split between a big increase in the April number of unemployed and revised March figures. Of course, expect a big jump in the unemployment rate. Plus, industry- and demographic-level data will help confirm which parts of the economy and population are feeling the most pain.

The upshot is while we have an initial data point (initial jobless claims), we may not have much meaningful insight into the underlying economic reality for some time. In terms of market impact, it wouldn’t be surprising to see a relatively muted reaction to future reports given employment data tend to be backward-looking, and investors have presumably already priced in considerable economic weakness given the depth and rapidity of asset-price declines since late February. Perhaps the biggest risk is if the data vary widely from evolving market expectations—to the upside or downside. But then again, investing during a global pandemic is indeed novel, and volatility is, as ever, impossible to predict.

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