If a record 3.3 million jobless claims in just one week comes as a shock, the next month is likely to tell an even grimmer tale: Tens of millions of jobs are at stake of disappearing, at least temporarily.
The spike in new applications for unemployment benefits last week didn’t even reveal the full cost of the early efforts to stop the spread of the coronavirus. Some states such as New York, New Jersey and California underreported the number of initial jobless claims. A flood of applications overwhelmed the small staffs who handle the applications and caused government computer systems to crash.
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The delayed applications will show up next week, when the number of new jobless claims nationwide could go even higher, perhaps to 4.5 million or 5 million.
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With many states struggling “to process the tidal wave of claims, last week’s data will not have captured the full extent of the damage,” said Andrew Hunter, U.S. economist at Capital Economics.
Estimates of how many jobs will be lost over the next few months are all over the map, but the most conservative forecasts put the number at 10 million in March and April.
How bad is that? The U.S. lost a total of 8.6 million jobs in the entire 2007-’09 Great Recession.
The $2 trillion financial-aid package from Washington will help, namely by offering tax incentives and forgivable loans to businesses that retain their workers.
But the package also expanded unemployment compensation to make potentially millions of Americans who would not have qualified in the past eligible for the first time, such as freelancers and independent contractors like Uber drivers. That could drive jobless claims even higher.
Whatever the case, the longer the crisis goes on, the more jobs that will be lost. Some economists think job losses could surge to 20 million or even higher. The St. Louis Federal Reserve estimated a whopping 67 million jobs are at high risk of unemployment.
By comparison, some 152.5 million Americans were employed in February, according to the U.S. Bureau of Labor Statistics.
The unemployment rate, meanwhile, is set to surge from a 50-year low.
Just the increase in new claims last week alone implies the jobless rate leaped to around 5.5% from 3.5% last month, according to the calculations of Erica Groshen, former commissioner of the Bureau of Labor Statistics and faculty member at Cornell University.
Many economists predict unemployment could soon top 10% — surpassing the peak during the 2007-’09 recession — and perhaps reach 15% to 20%. The only other time unemployment was anywhere close to that high was during the 1930s Great Depression.
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If the U.S. slows the spread of the coronavirus more rapidly or isolates most cases to hotspots such as New York City, the economy might not deteriorate quite as much and a recovery could happen sooner. But no one is counting on it.
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