Weekly claims for unemployment benefits jumped to 281,000 for the week ending March 14, likely the first sign of the catastrophic disruption to normal life and an impending economic recession caused by the spread of the coronavirus.
The only real question now is if the damage caused by the shocks cascading throughout the economy will surpass the cyclical peak of 665,000 jobs lost in March 2009 and the all-time high of 695,000 in October 1982.
Initial claims last week were only 211,000, which easily kept the weekly increase below its five-year moving average of 242,300. But as bars, restaurants and entertainment venues began closing down in metropolitan areas, out-of-work employees are swamping the state labor agencies and crashing their websites. And with the prospect of tighter restrictions on movement and gatherings, an upward trend in initial jobless claims is likely to follow.
Weekly claims for unemployment benefits jumped to 281,000 for the week ending March 14.
In the past five post-recession periods – counting the double-dip recession in the 1980’s as one continuous event – the number of months between the crossover of weekly claims above its moving average and the onset of a new recession has varied from one month to 10 months.
Keep in mind that it’s only with hindsight that a spike in claims, perhaps because of strikes or weather events, is just that, a temporary spike. So it’s hard to assert with any precision as to the start date for the next recession, which will be identified by the nonpartisan National Bureau of Economic Research.
Nonetheless, there is good reason to argue that the next recession might have already begun. The pandemic is likely to have its initial effect on service-sector employment, which has accounted for the bulk of employment gains in this latest cycle.
This crisis is probably most similar to the 1918 Spanish flu pandemic, which included the shutting down of normal activity in metropolitan areas within a climate of a postwar slowdown in production. U.S. economic growth has been slowing for more than a year, setting the table for an event to push it into an outright recession.
We’ll get additional confirmation of labor market conditions with the weekly claims data over the next three Thursdays, and then on Friday, April 3, with the monthly employment (change in non-farm payrolls) and unemployment reports.
A reliable model that signals the beginning of a recession is the Sahm Rule Recession Indicator. Developed by the economist Claudia Sahm at the Federal Reserve Bank of St. Louis, it “signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.”
With out-of-work employees lining up at state unemployment offices, we can expect a significant jump in the unemployment rate.