U.S. JOBLESS MAY HIT RECORD

ECONOMISTS PREDICT NUMBERS HIT 5.5 MILLION LAST WEEK

Economists across North America are predicting that the United States will set another record for unemployment claims when figures for the week that ended on March 28 are released on Thursday morning.

According to a Reuters survey, economists expect a median of 3.5 million job losses for the week, with some predicting that number could surpass 5 million as the effects of state-issued shut-in orders begin to be felt across the country.

“The surge in layoffs has already outpaced our expectations,” Goldman Sachs chief economist Jan Hatzius wrote in a report on Tuesday. “Accounting only for the large states where press reports permitted concrete estimates, we estimate that the level of jobless claims rose by more than two million to about 5.5 million during March 22-28.”

Capital Economics senior U.S. economist Andrew Hunter expects the U.S. to announce another “huge” number in the region of five million jobs. RBC Capital Markets, BMO and Citigroup believe the economy shed four million jobs. J.P. Morgan’s projection of 3.5 million falls in line with the median.

The U.S. shattered a 38-year-old record last week when 3.28 million Americans made unemployment claims. Not even the financial crisis in 2008 saw weekly claims rise above the 695,000 mark set in 1982 during a global recession.

Canada, meanwhile, has recorded about 1.55 million claims thus far.

U.S. Treasury Secretary Steve Mnuchin has downplayed the significance of unemployment numbers, saying they weren’t relevant because of the US$2 trillion stimulus package that the government passed last week.

“The president is protecting those people,” he said in response to the initial tally on CNBC.

But the reality is that unemployment data is indeed relevant for economists such as Hatzius, who are using the figures to not only determine when the economy will hit its bottom but what the impact on GDP will be.

“Our working assumption during this crisis is that each one percentage point increase in the unemployment rate corresponds to roughly a one-per-cent decline in the level of real GDP relative to trend,” said Hatzius, who projects unemployment to peak at 15 per cent.

Hatzius is expecting more than 11 million claims to be filed in the first three weeks of the crisis, meaning that he believes at least another two million claims will roll in over the week of March 30 to Apr. 3.

Citigroup chief U.S. economist Andrew Hollenhorst wrote on Tuesday that even

THERE WILL BE SOME PERSISTENT ISSUES.

after the flurry of unemployment claims to end March, he expects an additional 10 million to be made over the month of April.

Weekly numbers could remain high in April as individual states continue to issue stay-at-home orders that only allow residents to leave their homes for essential services such as groceries. Florida became the latest state to put the order into effect on Wednesday.

The rapid surge of unemployment claims has also overloaded state-run websites and telephone lines. Multiple reports suggest that potential claimants in New York were still unable to even complete applications days after the first wave of 3.28 million national claims was announced. Staggered layoffs, such as those seen in the retail sector, could also result in a high level of claims continuing to be reported throughout April.

Hollenhorst identified retail, along with restaurants, travel and group entertainment as the sectors that are likely to be hardest hit because they are most vulnerable to social distancing measures. These industries, which employ 28 million Americans, could singlehandedly bring the unemployment rate to 20 per cent, he wrote.

While that is an extreme case, Hollenhorst noted it’s more likely unemployment will peak at around 10.5 per cent in April and then slowly descend back to around six per cent by the end of 2020 as the U.S. struggles to deal with some lingering issues caused by the shutdown.

“There will be some persistent issues as not every business reopens, some businesses are cash-constrained and rehire slowly, and layoffs in some sectors accelerate structural change that will not be reversed,” Hollenhorst said.