US Jobless Claims Preview: Progress or exhaustion in the US labor market

• Jobless claims slated to decline for the third week in a row.
• Five week total would be more than 26.16 million, 15.9% of the labor force.
• Dollar has plateaued awaiting viral and economic developments.

It should be hard to call more than four million unemployment claims in one week progress, but if the forecast for April 17 is correct it would represent a 40% decline in the number of Americans filing for insurance in three weeks.

With more than 26 million people forecast to have been laid off or fired in the last five weeks the labor market catastrophe of the Coronavirus shutdowns is expected to plunge the US economy into contraction in the first quarter and a likely recession if some way cannot be found to reopen much of the shuttered commercial life.

The layoffs that began in the third week of March with 3.283 million claims reached 6.867 million the next week and have declined in each of the subsequent two weeks. Including the 4.15 million new claims expected on Thursday the total would be 26.16 million workers who have lost their paychecks in five weeks, an economically crippling 15.9% of the 164.6 member US workforce.

US GDP

While all of these people will collect federal insurance and many will have additional state benefits, the shock to demand for the consumer powered American economy is expected to drive growth into a deep reversal until at least a portion of normal life resumes.

The economy was expanding at a 2.7% annualized pace in first quarter in the weeks before the layoffs began according to the GDPNow model from the Atlanta Federal Reserve. Current projections range from -4.1% in the Reuters survey of economists for the April 29  GDP release from the Bureau of Economic Analysis, to -0.3%  in the April 16 Atlanta Fed estimates.

US annualized GDP

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Much of the unknown impact on GDP will depend on whether consumers in general think the economy will bounce back swiftly from the government ordered closures.

A number of states including Florida and Ohio are or will soon permit limited business reopening. If these experiments are successful other states that have seen only limited infections and deaths, especially those away from the coasts and the epicenter in the New York metropolitan region, can be expected to follow. 

Continuing claims

Continuing claims are predicted to rise to 16.476 million from 11.976 million. Most federal jobless benefits run for six months and the total each week is cumulative as the earliest filers have five more months of compensation.  During the financial crisis of a decade ago eligibility for most claimants was lengthened to a year.

The highest previous total for continuing claims was 6.546 million in May 2009. It came 20 months after unemployment claims had turned higher and the sharpest rise from 3.206 million in July to peak the following May took 10 months.

Continuing claims

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Temporary layoffs

A few states require employers to say whether a layoff is permanent or temporary when they certify that an individual has been fired and according to a Wall Street Journal article, California firms with at least 75 employees reported that just 7% of their March and April layoffs were considered permanent.

Colorado and Washington have similar requirements and of the reported 23,400 layoffs this year nearly 75% were considered temporary by their firms compared to less than 1% in 2009 and 2009.  

Conclusion and the US dollar

The rush for dollar funding and safety that dominated trading in March has subsided with much more limited ranges and volatility this month. Nonetheless the US currency remains higher on the year against all of the majors (euro, sterling, aussie and Canadian dollar) except the Japanese yen.

All of the above pairs have retreated from their dollar highs of late March indicating that the risk premium is conditional on progress in stemming the virus pandemic and, more importantly, in restarting economic life around the world.

Initial claims in the US were the great reality shock from the pandemic.  If they continue to improve and there is no second wave of American layoffs and if the moves to reopen economies in European and US states are well received the dollar premium will slowly fade.

While that is the likely future, it is certainly not yet the present.