US Initial Jobless Claims Preview: Is there an unemployment encore?

• Initial unemployment claims expected to be 5.250 million.
• Three week total would be more than 15 million, 10% of workforce.
• US dollar could benefit from reinforced risk aversion.

The number of American filing for unemployment insurance in the week ending April 3 is forecast to be at historic levels for the third week in a row as the layoffs and job losses from the public health crisis roll through the US economy.

Even the near record March payrolls loss of 701,000 does not come close to encompassing the destruction that could see more than 15 million people, removed from work in three weeks, almost 10% of the US work force of 163 million.  

Demand destruction

For a US economy that is 70% based on consumer spending the loss of that much consumption in such a short time will eviscerate demand, requiring businesses to reduce operations leading to more laid off workers and yet lower spending.

It is this negative cycle that the government’s stimulus and support programs are designed to forestall, if not quite prevent, until the economy is reopened and people can return to work.   

Dollar

The US dollar has been the main beneficiary of the waves of risk aversion roiling global markets.  The dollar index has gained 2.3% since the beginning of March and 3.8% year-to-date. 

Even though the US is now by far the center of the pandemic the depth of American markets and the unlimited ability of the Federal Reserve to support the economy and financial system has helped the dollar maintain its traditional role as the port of choice in an economic storm.  

Equities

Stocks have executed an abrupt turn after their low on March 23. The Dow has jumped 23% in the last two week and is 22% below its February 12 record of 22,568.  

With the apparent initial improvement in the pandemic prognosis, equities are beginning to look ahead.

CNBC

Conclusion and the dollar

Initial jobless claims have been the only statistics charting the destruction wrought by the Coronavirus on the US economy.  There will be others in the weeks ahead, particularly the April payrolls numbers on May 8.

The shock of the unemployment claims numbers has not inured markets to even worse figures. There are no parameters to provide standards only the numbers themselves as they are released.

If claims are higher than last week’s 6.648 million it would indicate that the economic damage will be even greater and the recovery more difficult and prolonged. If so the dollar will ride higher. 

But if claims are as predicted or lower they will have lost the ability to frighten and the dollar’s risk premium will begin to deflate.