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As Virus Jobless Claims Total Nears 40 Million, Let’s Make Sure We’re Asking The Right Questions

The question is not whether "the worst is over". Nor is the question about the "pace" of the rebound.

Another 2.44 million Americans filed for unemployment benefits last week, as the economic devastation from COVID-19 continues to exact a severe toll on the US labor market more than nine weeks on from the first apocalyptic set of jobless claims figures.

The previous week’s numbers (which were marred by a clerical error in Connecticut and other possible anomalies) was revised down by 294,000 to 2.69 million from 2.98 million.

The four-week average is now 3.042 million, down by about 500,000.

I say this every week, but it always bears repeating: There’s really no “silver lining” in this. Yes, the trend is lower. And it does appear as though the peak seen in late March won’t be revisited (likely ever again). But that’s small comfort. Remember, the numbers in late March were 10 times higher than the old record, set in 1982 – 10 times.

So, the fact that we’re now seeing “just” 2.4 million people filing is small comfort. These numbers are still multiples of anything witnessed prior to the epidemic.

The nine-week total is now 38.6 million. Continuing claims rose to 25.073 million for the week ended May 9.

The question here is not whether “the worst is over”. Nor is the question about the “pace” of the rebound. Obviously, the question is how structural this proves to be.

That is: How many of the jobs lost over the past two months will be recovered?

April’s jobs report – the worst in US history by a country mile – showed the number of people who are classified as “temporarily” jobless surged as a percentage of the total. In fact, that figure was nearly 80% (see here).

Let’s hope that classification (i.e., “temporary”) proves to be accurate.

The worry is that even if the Paycheck Protection Program and other extraordinary measures taken to keep workers on payrolls prove effective in the near-term, they will not prevent unemployment from resetting structurally higher.

If consumer preferences change, or if many small businesses are driven to bankruptcy by the time a vaccine is found, elevated unemployment levels may not be “temporary” after all. Workers could return to payrolls, only to be let go later. Not at the pace we’re witnessing now, obviously. But rather as a kind of “slow bleed” from a cut that refuses to heal all the way.

Don’t mistake that for some apocalyptic prophecy. I’m not suggesting the unemployment rate will stick in the double-digits forever. I’m simply saying that if even 5% of America’s restaurants go out of business (versus some estimates of 25%), or if shopping habits change such that brick and mortar ceases forever to be a viable model (and we were already approaching that threshold before anyone knew what “COVID-19” was), then it seems entirely plausible to suggest that a return to sub-4% unemployment may take quite a while.


 

8 comments on “As Virus Jobless Claims Total Nears 40 Million, Let’s Make Sure We’re Asking The Right Questions

  1. But, but, but … weren’t the expectations for 2.5 million? At 2.438 it’s a beat! A buy signal! Gotta run and load up on Apple stock.

  2. and as always, … there are actual real human beings (lives) behind the numbers – not just integers in a spreadsheet

  3. Yes I suspect that a great many fast food and chain restaurants are doomed. The big boys like McDonalds and of course delivery focused pizza chains will do ok but driving around town I see plenty of places that just cannot well adapt who do not have drive through or takeout focused menus and who take to long to turn tables to survive with 50% reduced customer seating. 20-25% of restaurants are almost certainly going under by the end of summer. Additionally there is risk to microbreweries given the degree to which distribution is regulated and bars.

    Brick and Mortar is likely to be heavily affected by how much you can pivot to online sources like Target, Walmart and of course Amazon. I would be worried about best buy for starters. JC Pennys is already down, Macy’s might have sufficient online presence but anything you see mostly in malls is a possible casualty. I would guess Bezos has a bunch of clothing brands in his sites. Imagine if they had internal designer brands like target does.

  4. Note Torsten Slok this morning: The long fat tail in the profile of job losses during this pandemic suggests that layoffs are no longer just because of the economy shutting down and a backlog of claims being processed. Instead, the fact that we still lost 2.4mn jobs last week after nine weeks of COVID-19 suggests that what is going on is a more permanent reallocation of workers away from jobs in industries that require a high degree of face-to-face and close physical interaction

    • Like any big shock the adjustment happens more quickly – a lot of these losses were going to happen- over 5 years maybe not 5 weeks for many businesses- the hospitality/restaurant business is a one off and would not have happened without a virus. And the economy would have had time to adjust to all the mayhem. You see major adjustments after shocks- see the GFC and the Great Depression. We are about to have another major realignment. That is the flaw in the “creative destruction argument”. If it happens all at once it is not creative- just destructive. Regards Scott Frew…

    • Anonymous

      Our local hospital in the last couple of weeks announced furloughs, layoffs, and salary reductions.

      People are going to restaurants again and nursing homes are episodically having outbreaks with 34-50% mortality.

      I think we messed up big as a country.

  5. I live in a small coastal town with a few great restaurants and coffee shops, as good as they are, these establishments depend heavily on locals to carry them during the off-season and tourists during the summer, most remain closed even though the virus did not hit my state hard compared to others (less than 80 fatalities statewide so far). I used to frequent my favorite coffee shop 4-5 days a week, they make a great latte and a superb pastrami egg sandwich ($12 total). During the lockdown I had no choice but to learn how to make decent coffee and actually got quite good at it. Even when the shop re-opens I don’t see myself making more than 2 trips a week, it’s simply easier to get my brew at home, the sandwich is another story. I’m certain variations of this behavior are countless among Americans across the country, our habits have changed, we will consume in different ways, I believe many are overly optimistic about the “return to normal” once every business has a chance to re-open, my bet is that 80% of job losses will not be temporary.

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