The U.S. labor market is about to experience even more pain, with Bank of America issuing a bleak forecast for initial unemployment insurance claims to soar to 3 million, as the coronavirus (COVID-19) disrupts the labor market. That would be the largest increase on record.
With the COVID-19 crisis shutting down entire cities and countless businesses, unemployment is already on the rise. During the week ending March 14, jobless claims jumped to 281,000, up from the 211,000 a week prior.
Now, BofA expects that the week ending Sunday will start to reflect the full force of food, retail and other service jobs laying off employees en masse. Major cities — and as of Thursday, the entire state of California — are urging residents to stay at home as new cases surge.
“Our forecast is based on a compilation of news reports which show roughly 270k applications have been filed over 19 states through Wednesday,” Michelle Meyer, chief economist for Bank of America Merrill Lynch, wrote in a note on Friday.
“Extrapolating from these numbers initial jobless claims will easily be in the millions, showing the immesh economic disruption the COVID-19 outbreak is having on the U.S. economy,” she added.
Meyer’s call joins that of Goldman Sachs’ Chief Economist Jan Hatzius who forecasted in a note on Thursday that a surge in layoffs would result in initial claims hitting 2.25 million.
Meyer, who said on Thursday that the U.S. has already “fallen into a recession,” expects the job losses from the coronavirus to be “severe.” She forecasts that private payrolls will “shed 1 [million] workers per month in 2Q, with most of the loss suffered in April before returning gradually back to trend” by the first half of next year.
Bank of America also expects a spike in the unemployment rate to 6% during the second quarter, and projects it to peak at 6.3% in the third quarter, with a monthly peak of 6.4% in July.
“The risk is that the unemployment rate rises even more,” Meyer added.
Bank of America also expected a “meaningful reduction” in the average weekly hours worked, forecasting that it will fall to 33.9 hours in the second quarter, down from 34.4 hours in February.
What’s more, the impact on the labor market from COVID-19 will “disproportionately impact” low-income hourly service workers, with industries such as leisure, hospitality, and transportation hit the hardest. These are also the workers who are unlikely to be able to work from home.
“Thus any mandatory closure of business establishments or limitation in activity placed in order to limit the spread of the virus will lead to a severe reduction in hours at best, furloughs or layoffs at worst,” the economist wrote.
“Given that many of these workers are ‘hand-to-mouth,’ the negative multiplier effect on the economy will be high,” she added.
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Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.