More than 6 million people filed new claims for unemployment in the week ending March 28. It’s hard to capture what a number like that means. Last week’s 3.3 million new claims was already almost five times the previous high of 695,000, reached in 1982. Economists’ consensus for this morning’s number was 3.8 million, which still would have been about triple the largest weekly increase ever before last week. The 6.6 million new unemployment claims reported today is once again off the charts. But the almost unimaginable second surge doesn’t mean we didn’t understand the costs of efforts to contain the COVID-19 pandemic—it’s just that the costs have come more quickly than expected.
“Recessions, even bad ones, usually develop over time,” said LPL Financial Chief Investment Officer Burt White. “The economy slowly heats up, and the Fed pumps the brakes. This time it’s been more like driving into a tree. But when we get to the other side, with all the fiscal and monetary support, we’ll probably move fast and get as strong a rebound.”
Ultimately, only scientists and doctors can address the cause of the pandemic, but the Federal Reserve (Fed) and the government have responded more quickly and decisively than they ever have before on the economic side. They’ve approved $2.2 trillion in fiscal stimulus so far, or about 10% of gross domestic product (GDP), and the Fed has committed to open-ended support to backstop key financial markets with over a dozen new programs. These efforts will help us get to the recovery while the scientists do their work.
The economic impact of COVID-19 has happened so fast that new jobless claims, which come out weekly, is the only economic report that’s given us a good sense of what’s been occurring on the ground. Even tomorrow’s March unemployment report won’t capture it, since it’s based on a survey taken in the middle of the month. To get a sense of the scale of the new claims numbers, think about this: Based on our analysis of US Bureau of Labor Statistics data, the almost 10 million new unemployment claims over the last two weeks are about equal to the total number of new workers added since mid-2015, or about 4.5 years of job creation, and the claims represent more than 6% of the total working population.
These jobs will come back. They didn’t disappear because of some defect in the economy. Lots of us are looking forward to going back to our favorite restaurant or taking a trip as soon as the all-clear is sounded, and we’re all hoping sooner rather than later.
Despite the extraordinary number of new claims, the report is unlikely to have much impact on markets. The overall picture of what’s going on was known, even if the numbers captured it more quickly and starkly than expected. Over the near term, market participants may not focus much on economic reports at all. Economic data is backward looking and too slow moving to capture an economic event whose impact has been so sudden. What markets will be reacting to is shifting expectations of progress toward containing the pandemic and the effectiveness of policies to help businesses and workers get to the other side.
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