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How High Could U.S. Unemployment Rise In The Coronavirus Recession?

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Via SeekingAlpha.com

The U.S. Bureau of Labor Statistics released its Employment Situation report for March 2020 early today, the first monthly report since the coronavirus recession began in mid-March. Here’s how it describes the change in non-farm employment since the BLS’s February 2020 report:

Total nonfarm payroll employment fell by 701,000 in March, and the unemployment rate rose to 4.4 percent, the U.S. Bureau of Labor Statistics reported today. The changes in these measures reflect the effects of the coronavirus (COVID-19) and efforts to contain it. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.

The data from this report was collected via the BLS’s monthly survey of business establishments covering pay periods including 12 March 2020, and as such, represents a snapshot in time from just before President Trump declared a national emergency on 13 March 2020 and a week before state governors began ordering residents to stay-at-home and statewide business closures on 19 March 2020.

In the two weeks since then, the number of initial unemployment insurance claims has spiked sharply upward, breaking previous records, with 3.3 million filing new unemployment claims as of 26 March 2020 and another 6.6 million on 2 April 2020.

Those newly unemployed Americans will be showing up on the April 2020 employment situation report, but the bigger question begging to be answered is how high could U.S. unemployment rise in the coronavirus recession?

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Back on 22 March 2020, St. Louis Federal Reserve Bank president Jim Bullard estimated the unemployment figure may hit 30% during the second quarter of 2020, but where does that number come from? After all, the unemployment rate in February 2020 was 3.5%, and that would be a huge change.

The St. Louis Fed’s Miguel Faria-e-Castro worked through step-by-step how that back of the envelope estimate was calculated. In the following passage, we’ve added the links to the blog posts he references, other data he cites may be accessed via the Federal Reserve Economic Database (FRED):

  1. Civilian labor force in February 2020 = 164.5 million (BLS via FRED)
  2. Unemployment rate in February 2020 = 3.5% (BLS via FRED)
  3. Unemployed persons in February 2020 = 5.76 million (#1 * #2)
  4. Workers in occupations with high risk of layoff = 66.8 million (Gascon blog post)
  5. Workers in high contact-intensive occupations = 27.3 million (Famiglietti/Leibovici/Santacreu blog post)
  6. Estimated layoffs in second quarter 2020 = 47.05 million (Average of #4 and #5)
  7. Unemployed persons in second quarter 2020 = 52.81 million (#3 + #6)
  8. Unemployment rate in second quarter 2020 = 32.1% (#7 / #1)

That’s useful back of the envelope math, so we’ve built the following tool to do it, where you may substitute the values to consider other scenarios, such as state level data or the data for other nations. If you’re accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version.

Running the tool with the default data, we can see where the St. Louis Fed gets its estimate of potential 32% unemployment. We should caution that this is a ballpark estimate of how high U.S. unemployment may grow, where the tool allows for more refined estimates of the impacted workforce as better information becomes available.

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We’ve also generalized the descriptions for the affected workforce from Faria-e-Castro’s description, which should make the tool more generally applicable than the specific scenario he considered.

Looking back at the employment situation in 2020-Q2, with roughly 10 million new unemployment claims filed in the last two weeks just as the quarter began, we are already nearly one fifth of the way to the St. Louis Fed’s estimate of potential job losses from the coronavirus recession.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.




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