Unemployment caused by coronavirus will leave deep scars in US
The surge in unemployment in the United States caused by the Covid-19 pandemic shatters all previous records. In its time, the world’s biggest economy has seen some savage shake-outs of its labour market but nothing that remotely compares to what has just happened.
Jobless claims in the week ending 21 March surged to almost 3.3m, which was double what Wall Street analysts had collectively been expecting. The previous worst total in October 1982 was just one fifth of last week’s level.
That, though, was during a recession engineered by the then chairman of the Federal Reserve, Paul Volcker, who used ultra-high interest rates to squeeze inflation out of the economy. The pain in the early 1980s gradually ratcheted up: this time it has arrived overnight, with whole sectors of the economy shutting for business last week.
As a result, it was an absolute certainty that jobless claims would smash all known records this week. In truth, the actual number was probably closer to 4m because government offices struggled to process the deluge of new claimants. As Paul Ashworth, a US economist at Capital Economics, noted, the increase in California was put at 200,000, whereas more upto-date information suggests that the layoffs in the country’s most populous state have hit the 1m mark.
Further big weekly rises in jobless claims can be expected over the coming weeks – although they seem unlikely to be quite as big. That’s because the sectors that felt the impact of the shutdown of the economy first – such as retailing and hospitality – are also the sectors that employ Americans in their tens of millions.
Before the Covid-19 pandemic struck, the US had its lowest unemployment rate since the late 1960s. That is now history. The official jobless rate is about to rocket from just under 4% to at least 10%.
Unemployment will start to come down again once the economy is out of lockdown and starts to recover. But it will come down less rapidly than it is going up and – on past form – it will leave deep scars.
Rising unemployment is not helpful to sitting US presidents seeking reelection, which perhaps explains why the US government’s stimulus package contained more generous benefits for those losing their jobs. And why Donald Trump is so keen to get the economy going again.