Layoffs Begin: Jobless Claims Spike on Virus Layoffs, Highest Level Since July 2017
Initial jobless claims rose 281,00 this week, exceeding economist projections of 211,000 and sending yet another bearish signal through an already collapsing market. The first time unemployment claims number is the highest since July 2017 when claims reached 291,000.
Bars, restaurants, coffeeshops and retail sales outlets idled by COVID-19 social distancing protocols contributed the majority of the claims, fulfilling an expected rise in unemployment as the stock market collapse and projected drop in Gross Domestic Product begin impacting employer labor demand.
The theoretical relationship between unemployment and domestic production follows a formula familiar to economists as Okun’s Law, which predicts that for every 2% decline in GDP, unemployment rises by 1% and vice-versa. With projections of a virus inflicted 10-15% reduction in GDP over the coming year, (versus a projected 2%-2.5% rise, pre-virus) simple math indicates an expected minimum direct pullback in rounded workforce numbers of 7% to 10%, meaning unemployment at 10% to 16% by the end of the coming year. That estimation doesn’t include continuing liquidity issues and ripple effects of a targeted 40-50% market correction and labor participation impacts.
Treasury Secretary Steven Mnuchin this week predicted that based on a projected -10% drop in GDP, unemployment could eventually reach 20% or higher as a result of pandemic impacts.
President Donald Trump has promised stimulus measures to help blunt the personal fallout of an economic reversal of fortune that has already erased all of the wealth creation and market valuation gains made during his Presidency in the span of three weeks, notably promising a $2,000 check to most American citizens based on income, to help assist with work stoppages because of the virus.