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*U.S. initial jobless claims declined to 6.6m during the week ending April 4 from its record high of 6.9m in the prior week (Chart 1). This is the first decline in initial claims since early March, suggesting that they may have already peaked, although they remain disturbingly high. Initial jobless claims have totaled 16.8m over the last three weeks.
*Continuing claims for unemployment insurance, which are reported with a two-week lag, increased to 7.5m during the week ending March 28 from 3.1m in the prior week, an all-time high (Chart 2). This rapid deterioration in labor market conditions is historic. Continuing claims jumped from 2.8m in January 2008 to 6.6m in May 2009, during the Great Recession – it took 17 months for continuing claims to increase by 3.8 million; this time a 5.7m increase has occurred over a couple of weeks.
States reporting the highest number of initial jobless claims (in non-seasonally adjusted terms) include California (925k), Georgia (388k), Michigan (385k), and New York (345k). With almost all states issuing stay-at-home orders, initial claims have probably already peaked.
The Bureau of Labor Statistics’ (BLS) March Employment Report showed only a 1.35m increase in unemployment to 7.14m from 5.79m in February, because it captured labor market conditions during the week of March 8-14, before the widespread shutdown of economic activities. The estimate of unemployment in the April Employment Report will reflect labor market conditions for the week of April 12-18. The massive increases in jobless claims over the last three weeks indicate that a surge in unemployment of at least 17m should show up in the April report.
The eventual recovery in the labor market will be nowhere as rapid as its deterioration. Governments will be very careful in reopening sections of the economy, and until there is a vaccine/therapeutic for COVID-19, rolling shutdowns may unfold in smaller pockets. Moreover, some businesses have permanently closed and others that reopen may reduce payrolls because of sluggish demand. Labor market dislocations will take a while to sort out.
A sluggish labor market recovery will constrain the rebound in consumption, especially of nonessential goods and services.
Chart 1:
Chart 2:
Roiana Reid, roiana.reid@berenberg-us.com
Member FINRA & SIPC
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