The COVID-19 pandemic rages on, and the damage being done to the U.S. economy is expected to only get worse.
The U.S. Labor Department will release fresh data Thursday morning that will show the effect of the novel coronavirus on employment in the U.S. The number of Americans filing for unemployment benefits is expected to spike to a record-breaking 3.5 million for the week ended March 28, up from 3.283 million the week prior. Prior to the week ended March 21, the previous record was 695,000 claims filed the week ended October 2, 1982.
“This week’s claims data are likely to serve as another reminder of the historic nature of the current economic contraction,” Nomura economist Lewis Alexander wrote in a note to clients Tuesday. “The sharp increase reflects a significant, and sudden, deterioration in the labor market as many businesses, facing plummeting consumer demand and mandatory closures, furlough workers.”
Though consensus estimates were for 3.5 million initial jobless claims for the week ended March 28, the range of estimates on Wall Street are wide, but the major firms expect the number to be in the millions. On the high end, Bank of America expects 5.5 million claims for the week, while on the lower end, JPMorgan predicts 2 million claims.
Early data from individual states pointed to more pain ahead for the labor market.
“Based on our read, 22 states are expecting approximately 2.5mn unemployment insurance (UI) claims, up from the prior week’s official non-seasonally adjusted figures of 1.4mn,” Bank of America economist Michelle Meyer said in a note Wednesday. “Meanwhile, several other states have given general guidance that UI claims will be higher in the upcoming report. A rough back-of-the-envelope calculation extrapolating out to all 50 states would imply close to 5.6mn new UI applications.”
Market participants should pay particular attention to revisions to the prior week, according to Meyer.
“Normally revisions are modest and inconsequential,” Meyer explained. “However, state UI offices are reporting major backlogs of applications. Thus, we could see major upward revisions as these applications are processed. Moreover, we continue to hear workers unable to apply for benefits due to phone lines being busy and/or websites being down. Both of these factors pose downside risk to our forecast and the numbers reported on Thursday may fail to capture the “true” number of unemployed workers in the labor market.”
In addition, the CARES act that was signed into effect last week expanded unemployment privileges to previously ineligible people such as those who are self-employed and independent contractors. As a result, the number of filers could meaningfully increase.
Furthermore, Google searches for “unemployment benefits” have soared over the past month. Interest peaked on March 26, and while interest has fallen slightly since then, the searching for the phrase remains elevated. The upward trend began March 11 before peaking on March 20. President Donald Trump declared the COVID-19 outbreak a national emergency on March 13.
Confirmed cases of COVID-19 are still on the rise, and thus uncertainty remains high. As of Wednesday afternoon, there were 883,225 confirmed cases globally and 44,156 confirmed deaths, according to Johns Hopkins University data. The U.S. currently has more infections than any other country in the world, with 189,753 confirmed cases and 4,102 deaths.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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