The carnage in the American labor market continued unabated for the week ending April 4 as first-time jobless claims soared to 6.6 million, which implies a real-time U.S. unemployment rate of 14.6% at a minimum.
Once one takes into account those who have lost their jobs but are not showing up in the labor data, the likely unemployment rate for the month of April will land somewhere closer to 17%. Over the past three weeks, initial jobless claims have increased by 16.780 million.
The claims data for the first quarter saw a net decrease of 12.75 million, which would suggest that gross domestic product for the first quarter contracted at an 8.5% pace at a minimum.
RSM US economics is downgrading its estimate of first quarter GDP to a contraction of 10%, and we are keeping our second quarter estimate of a 30% decline in overall output for the quarter. We expect the recession will end in the third quarter, where we anticipate a 1% contraction and a rebound of 20% in the final three months of the year.
The major takeaway from the labor market data is that Congress and the administration are going to have to provide more aid to a beleaguered domestic labor force that will face a period of mass unemployment.
Congress and the administration are going to have to provide more aid to a beleaguered domestic labor force.
The $250 billion number that has been thrown around over the past week is not going to be sufficient to address the issues faced by the unemployed. There is an obvious need to address the extreme crisis facing hospitals and the medical community, which given the risks to the public would draw first attention.
In addition, there is clearly a growing need to supplement the Paycheck Protection Program for small businesses that has had a difficult launch despite the probability of oversubscription. When one steps back and looks at the policy fires breaking out on several fronts, that $250 billion number seems small and out of touch.
It is our expectation that if political actors in Washington D.C. have not yet got their heads wrapped around the economic challenges that the overwhelming majority of the public is about to face, then perhaps the prospect of a greater than 20% rate of unemployment lasting through election day will.
While we think that data for the period ending March 28 represents a peak in first-time claims during the current recession, large numbers of people will continue to report job losses for the next several weeks, which will send the overall unemployment level well above 20%. The only real question is whether this crisis will result in an unemployment rate of higher than the 24.9% posted in 1933.
A 3.5% rate of unemployment is now decisively in the rear-view mirror and outdated. It is time to retire those calls for a V-shaped recovery and hope that a significant release of pent-up demand will cause the economy to snap back.
It’s time to begin thinking about not just how deep the recession will be, but how long, and the proper policy response in terms of aid and eventually well-timed stimulus to get the economy moving again once it reopens.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.