This week's sharp jump in jobless claims is just the tip of the iceberg, labor economists warn, predicting that the United States could shed millions of jobs in short order as businesses cut back or close completely to halt the spread of the coronavirus pandemic.
The surge in jobless claims to 281,000 — a jump of 70,000 from only a week ago — was an early warning, according to analysts at Goldman Sachs. The investment bank’s dire outlook predicts weekly claims will skyrocket to 2.25 million by next Thursday, an astonishing reversal of fortune for a labor market that had been enjoying a sustained stretch of record-low unemployment as recently as a few weeks ago.
“The job market is in free fall,” said Mark Zandi, chief economist at Moody’s Analytics. “Businesses have no choice but to reduce payrolls,” he said, adding that even those who remain employed face gloomy prospects. “Most of those people, even if they don't lose their jobs, they're going to lose hours, they're going to lose pay,” he said.
Roughly 14 million jobs in the leisure and hospitality sector alone are at risk due to mandated shutdowns, according to one estimate.
Already, roughly 14 million jobs in the leisure and hospitality sector alone are at risk due to mandated shutdowns, according to an estimate from executive outplacement firm Challenger, Gray & Christmas.
“It’s going to end up being a lot more broad-based,” said company vice president Andrew Challenger. Manufacturers who have had their supply chains disrupted when the coronavirus ravaged China are now running low on inventory; supporting goods and service providers to key production sectors like automotive and energy will be sidelined as those larger cogs grind to a halt.
The real picture of labor market distress is probably more dire than this week’s jobless claims indicate. “We’ve heard many anecdotal reports about state after state having their unemployment insurance systems crashing because the volume is so large,” Challenger said. “As resources are diverted to make unemployment offices in each state more robust, those numbers will climb dramatically,” he predicted.
The next monthly jobs report, scheduled to be released April 3, also will likely not reflect the true magnitude of the crisis because of when the government collects the underlying data. “The Bureau of Labor Statistics may understate the case,” Zandi said. “The hard stop didn’t really begin until late last week and it’s unraveled rapidly over the last few days. I don’t think the report’s going to pick that up, just because of the timing. It’ll be clear we have a problem. It'll be unclear how big of a problem.”
To labor market observers, though, it’s clear that things are plummeting at a dizzying rate. “If the recent pace continues through the end of the week, California alone could report 400,000 claims for the week, and the national total would be on course for 3 million,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.
Shepherdson also warned that next month’s reading is likely to be far grimmer, estimating that April’s BLS report could show an unprecedented job loss of 5 million. By contrast, the worst monthly report during the Great Recession came in March of 2009, when the economy shed 800,000 jobs.
April’s monthly report could show an unprecedented job loss of 5 million. By contrast, the worst monthly report during the Great Recession showed a loss of 800,000 jobs.
And the pain won’t be limited to the U.S., agencies are warning. A new report from the U.N.’s International Labour Organization paints a worrisome picture. Even the 22 million jobs lost globally during the Great Recession pale in comparison to the group’s worst-case scenario, which predicts a loss of nearly 25 million jobs, with up to $3.4 trillion in lost earnings as a result.
The biggest X factor is the trajectory and duration of the spread of the virus, which remains unknown to epidemiologists and economists alike — but the longer the world’s largest economy is throttled, the greater the struggle to recover will be. “There's a hope we can get past this crisis and get people back to work. Day by day that's put in jeopardy,” Challenger said. “It’s accelerated really quickly.”
Economists worry that an apparent push by the White House to quash the dissemination of bad news will only make things worse. Zandi slammed reports that President Donald Trump's administration ordered state labor offices to stop publicizing their own jobs data. The Wall Street Journal on Thursday cited an unnamed official who said a directive from the Department of Labor had concerned state-level administrators deeply. The official characterized the demand to embargo economic statistics as unprecedented, telling the Journal, “I’ve never seen anything like this.”
“This is really a huge mistake,” Zandi said. “If they don't know how bad it is, how can policymakers and people make good decisions, and where does it stop?” he said. “People aren't going to feel like they're getting the truth… and if no one trusts, everyone panics.”