Thursday, March 26, 2020
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Jobless claims this morning will be historic
Some truly shocking economic data is expected to be published in just a few hours.
At 8:30 a.m. ET, the Department of Labor will publish its latest weekly report on initial filings for unemployment insurance. Many economists have pointed to this data series as the best real-time gauge of the health of the U.S. labor market.
Last week, the number of first-time filings for unemployment insurance spiked by 70,000 to a two-year high of 281,000.
But investors likely haven’t seen anything yet.
According to estimates from Bloomberg, Wall Street economists are looking for initial claims for the week ended March 21 to total 1.64 million, a print that would be a record by a wide margin. The current record for number of initial unemployment filings in a single week is 695,000, seen back in October 1982. The largest single week of initial claims during the financial crisis saw claims total 665,000.
And some economists are looking for weekly claim numbers more than double the consensus estimate.
Economists at Bank of America Global Research led by Michelle Meyer expect initial claims will total 3 million when Thursday’s data is released.
“Our forecast is based on a compilation of news reports which show roughly 720k applications have been filed over 19 states through Wednesday [March 18],” the firm wrote in a note late last week. “Extrapolating from these numbers initial jobless claims will easily be in the millions, showing the immense economic disruption the COVID-19 outbreak is having on the US economy.”
Wells Fargo also expects claims could total 3 million, though the firm maintains an extremely wide range of potential outcomes in its forecast, noting that anything between 1 million and 3 million initial claims is in play. “This will shock even the most bearish forecasters,” the firm wrote in a note published Friday. “As economic activity is grinding to a halt, the U.S. economy is quickly catapulting into a recession and in need of further policy intervention.”
These data, however, are only just the beginning of what is expected to be a nasty run of employment data in the U.S. as businesses rapidly shut down over the past two weeks.
Michael Pearce, senior U.S. economist at Capital Economics, said last week that some 30 million service sector workers are at risk of being laid off given the severity of the current economic sudden stop. And while Pearce expects claims spiked by “millions” last week, “the bleeding is unlikely to stop there.”
In a note published Wednesday, Pearce’s colleague Paul Ashworth forecasted a decline in annualized U.S. GDP of 40% in the second quarter with unemployment rising to 12%, implying 14 million jobs will be lost because of coronavirus-related activity declines.
“With states already reporting an unprecedented wave of jobless claims, we may be under-estimating the impact,” Ashworth writes.
“In past downturns the percentage decline in employment was at least as big as the fall in real GDP, in which case the unemployment rate could hit 20%. But, in this case, we think some employers will hold on to workers if they think the shutdown will only last a month or two.”
And the current relief package making its way through the halls of Congress does appear to incentivize employers to retain their workers through the duration of this slowdown, which could provide some relief to employment data in the months ahead.
But the severity of the coronavirus outbreak and the measures already taken by employers across the country are unlikely to spare investors from at least a few weeks of mind-bending economic reports. A stretch that begins today.
What to watch today
8:30am ET: Initial jobless claims for the week ended March 21 (estimated 1.64 million, prior 281,000 for week ended March 14)
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