The US Treasury secretary has warned the coronavirus pandemic could send unemployment soaring to 20 per cent without continued intervention by the Federal Reserve and congressional approval of a $1tn economic stimulus package.
Steven Mnuchin issued the dire warning during a closed-door meeting with US senators as the Trump administration finalised a legislative package aimed at rescuing an economy with airlines on the brink of bankruptcy, hotel chains putting thousands on unpaid leave, and bars and restaurants empty in major cities.
Donald Trump conceded the US “could be” headed for recession, but said the economy would strongly rebound once the pandemic had been brought under control. “When we are finished with the virus, we will win . . . and when the victory takes place our economy will go through the roof,” he said at a daily news conference on Tuesday.
Mr Mnuchin used the 20 per cent figure as just one example of what could happen without dramatic action from the authorities to tackle the economic crisis sparked by the coronavirus pandemic, according to one person familiar with the Capitol Hill exchange.
The person stressed it was a worst-case scenario — one that was unlikely to occur since the Fed, Treasury and Congress were already taking steps to address the economic fallout from the crisis.
“During the meeting with senate Republicans today, Secretary Mnuchin used several mathematical examples for illustrative purposes, but he never implied this would be the case,” Monica Crowley, the Treasury spokesperson said when asked about the 20 per cent figure.
Still, Mr Mnuchin’s warning underscored the quick and dramatic toll the pandemic is taking on the US economy as authorities across the country begin to issue ever more stringent measures to prevent public movement to curtain the disease’s spread.
“This is one of the most terrifying economic moments I’ve lived through,” said Martha Gimbel, a former White House economic adviser who heads economic research at Schmidt Futures, non-profit research organisation. “This is happening so much faster than the great recession.”
The US jobless rate stood at 3.5 per cent in February. While policymakers usually rely on data that the Department of Labor releases at the beginning of the month, the speed at which the economy has slowed means that even recent data has become outdated. A batch of jobless claims data obtained from several states by local media in recent days suggest the US labour market is beginning to see strong upticks in unemployment.
On Monday and Tuesday, almost 49,000 people in Ohio filed jobless claims, a 27-fold increase from the same period last week, according to WBNS, a Columbus-based TV station. Connecticut has had 30,000 claims since Friday, according to the Hartford Courant, a roughly tenfold rise from its typical weekly total. Colorado usually has 2,000 jobless claims a week, but according to Colorado Public Radio there were 6,800 claims by 10am on Tuesday.
Sherrod Brown, the Democratic Ohio senator, said the number of daily jobless claims in the rust-belt state had risen from 536 on Sunday, March 8 to 11,995 a week later, and to a staggering 36,645 on Monday.
“For tens of thousands of Ohioans the economic crisis is already here. We should have already voted on the House-passed bill,” Mr Brown tweeted on Tuesday evening, in a reference to an earlier and smaller rescue package that the House passed last week but that still awaits Senate approval.
Ms Gimbel said the true picture would not be clear until this week’s unemployment claims are compiled on March 26. But she pointed out that employees in leisure and hospitality industries, which have been badly hit, represent 13 per cent of the labour force, while retailers make up 12 per cent. She said that would mean a quarter of jobs in heavily locked-down areas could disappear.
“It’s unprecedented,” Ms Gimbel said. “The economic situation is moving so quickly that policymakers are only starting to realise how bad it’s going to be.”
Marriott said it would put tens of thousands of its 130,000-strong workforce on unpaid leave. The American Hotel & Lodging Association said 4m hotel jobs were “on the verge of being lost in the next few weeks” if not already.
Some of the largest US companies, such as Alphabet and Microsoft, have earned plaudits by pledging to continue paying workers even while some are idled. But analysts question how long even the best-capitalised groups will keep workers if pandemic-related disruptions stretch beyond a few weeks.
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Follow Demetri Sevastopulo on Twitter: @dimi