Initial claims for Americans applying for first-time unemployment insurance soared to well over 3,000,000 last week, marking easily the largest weekly tally since the government began reporting the data. At 3,283,000, the weekly total shattered the previous record of 695,000 set in October 1982. That was a mark that economists had expected claims to easily surpass, although the range of expectations was exceptionally broad.
Beyond the sheer magnitude of the claims number, the degree of change in just a few weeks is striking. Claims had remained very near half-century lows before ticking up last week to a revised 282,000.
The four-week moving average, which is normally intended to smooth the volatility in week-to-week data, came in just under 1,000,000. That number is arguably meaningless in the current scenario and is certain to climb in the coming weeks even if the pace of claims stabilizes or declines.
This report is one of the first tangible indications of the toll that the labor force is experiencing from the shutdowns happening across the U.S. Governmental policymakers, schools, and businesses have taken extreme measures to limit the spread of the COVID-19 virus. These efforts have even ramped up recently as a growing number of states have followed California’s lead in ordering residents to shelter in place.
The hospitality sector has been hit especially hard as government officials have implemented strict orders to shut down restaurants and limit travel. This has put millions out of work and indications suggest that an unprecedented level of claims could continue for a few weeks.
The unprecedented increase in claims is reflective of the screeching halt in an economy that was otherwise performing reasonably well a month ago. This time is different because the source of mass layoffs didn’t have its roots in an economic excess.
The root of this crisis was in the need to initially encourage and increasingly mandate changes in day-to-day behavior for all Americans to reduce the spread of the COVID-19 coronavirus. The direct effect is significant, unprecedented collateral damage to the economy.
After a slow start and some hurdles, it now appears that the federal government is moving swiftly to pass legislation that would provide an estimated $2 trillion in near-term fiscal stimulus. That package is aimed at providing financial relief to households, expand unemployment insurance, provide additional aid to healthcare providers, and financing support for businesses. The challenge will be getting that support to the individuals, families, healthcare providers, and businesses that need it as quickly as possible – the sooner the better to buffer the immediate impact of the sharp slowdown in the economy.
It is too early to know what the ultimate impact will be from the broad measures put in place so far to mitigate health risks. It’s clear that the economy is taking a significant hit in in the near-term, as almost every area of economy begins to feel the implications of the shutdowns. Looking forward from here though, the key will be when the growth in new cases of infection subsides.
Once the health crisis passes, the economy is expected to bounce back quickly. Businesses can re-open, and a surge in re-hiring could also be record-setting. The question is largely one of timing. Most economists are pointing to a resurgence late in Q2 or perhaps Q3. That will unquestionably hinge on how effective we all are in altering our daily behavior, exercising appropriate discretion, and slowing the spread of the virus.
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