03/19/2020

The number of Americans filing for unemployment benefits surged to a 2-1/2-year high last week as companies in the services sector laid off workers because of the coronavirus pandemic that has fractured economic activity.

Initial claims for state unemployment benefits jumped 70,000 to a seasonally adjusted 281,000 for the week ended March 14, the highest level since September 2017, the Labor Department said on Thursday. Data for the prior week was unrevised.

Economists polled by Reuters had forecast claims would increase to 220,000 in the latest week. The Labor Department attributed the jump in claims to COVID-19, the respiratory illness caused by the coronavirus.

“A number of states specifically cited COVID-19 related layoffs, while many states reported increased layoffs in service-related industries broadly and in the accommodation and food services industries specifically, as well as in the transportation and warehousing industry, whether COVID-19 was identified directly or not,” it said.

Jobless claims are the most timely labor market indicator. The coronavirus outbreak has forced millions of Americans to hunker down in their homes, with state and local governments escalating “social distancing” policies, closing schools, bars, restaurants and theaters in an attempt to contain the virus.

The death toll in the United States from the COVID-19 illness caused by the coronavirus has topped 100 and more than 9,000 people are infected, according to a Reuters tally. Nearly 9,000 people have died across the globe and almost 219,000 have contracted the disease.

Health experts, however, say the figures are much higher given that testing is not readily available in many countries, including the United States. The virus has crippled the transportation, leisure and hospitality industries, as well as the manufacturing sector. Economists are anticipating a surge in job cuts and are predicting recession by the second quarter.

The Federal Reserve aggressively cut interest rates to near zero on Sunday, and pledged hundreds of billions of dollars in asset purchases and to backstop foreign authorities with the offer of cheap dollar financing. The Trump administration is pushing for a $1 trillion stimulus package.

U-SHAPED RECOVERY

Economists say the upcoming economic downturn is most likely to assume a U-shape. JPMorgan on Wednesday estimated that first- quarter gross domestic product would contract at a 4.0% annualized rate followed by an even steeper 14.0% decline in the second quarter. It forecast the economy contracting 1.8% this year and the unemployment rate rising to 5.3%.

“The fact that the unemployment rate ends the year substantially higher than the current level should make clear why it would not be accurate to describe this as a V-shaped recovery,” said JPMorgan economist Michael Feroli. “Even with a strong third-quarter (growth) that strength is not nearly enough to undo the expected damage to the labor market.”

The Labor Department said only claims for Pennsylvania were estimated last week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 16,500 to 232,250 last week.

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of March’s employment report. Claims increased 66,000 between the February and March survey periods suggesting slower job growth this month.

The economy created 273,000 jobs in February, matching January’s tally, which was the largest gain since May 2018. The unemployment rate is near a 50-year low of 3.5%. Labor market strength has been the main driver of the longest economic expansion on record, now in its 11th year.

The U.S. Travel Association estimated this week that the coronavirus could eliminate 4.6 million travel-related jobs in the country this year. Projections from the National Restaurant Association were even more dire, with the lobby group predicting the industry could lose 5-7 million jobs over the next three months.

Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid rose 2,000 to 1.70 million for the week ended March 7. The four-week moving average of the so-called continuing claims fell 7,000 to 1.70 million.

Reuters (Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci)