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US jobless claims smash through record as lay-offs accelerate

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Via Financial Times

The number of Americans filing for first-time unemployment benefits doubled to more than 6m, hitting a record high for a second consecutive week as lay-offs stemming from the coronavirus shutdown accelerated and spread into new industries.

Initial jobless claims jumped to 6.65m in the week ending March 28, the labour department said on Thursday. That eclipsed economists’ forecasts for a rise to 3.7m.

The figure more than doubles last week’s total of 3.31m claims, the previous record high. The new data published on Thursday takes the two-week total to 10m job losses.

As states and cities shut down non-essential businesses, retailers and restaurants facing a collapse in revenue laid off employees across the country.

States reported that shutdowns continued to primarily affect the service sector, but the pain has spread to the healthcare and social assistance, manufacturing, wholesale trade and construction industries as well. 

Line chart of Initial US unemployment claims, weekly (thousands) showing Almost 10m jobless claims filed in two weeks, 6.6m in most recent week

According to early state-level estimates that have not been seasonally adjusted, California reported the largest number of jobless claims at 878,727, while Pennsylvania reported 405,880. New York, which has emerged as the biggest US hotspot for Covid-19, reported 366,403 claims.

All three states have asked residents to stay at home to try to curb the outbreak’s spread. Florida, which on Wednesday announced a statewide order for its 21m residents to stay at home, reported 227,000 claims.

“On the one hand these numbers are extremely frightening, and they speak to the size of the shock and the acute nature of the downturn,” said Michelle Meyer, chief US economist at Bank of America. “On the other hand, they tell you there’s a government response that’s working, that there’s money to flow into the hands of the people who need it most right now.”

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Ms Meyer said it would be difficult to know whether companies were willing to rehire until lockdowns begin to ease, and managers get a better sense of what will happen as people begin to spend money again.

The $2tn coronavirus relief legislation passed by Congress last week widened eligibility for state unemployment funds to include self-employed and gig-economy workers, and added $600 per week to existing benefits. The rapid growth in claims shows that some businesses are still choosing to let workers go as they await federal support through the Small Business Administration and a fund for larger companies. 

“[Thursday’s claims number] tells you that government programmes are too late, and companies have already reacted,” said Torsten Slok, chief economist at Deutsche Bank Securities. “That doesn’t mean that companies can’t go back and hire people, it just means that C-suite America couldn’t wait for the life vest.”

The jobless claims suggest that employment may have dropped by more than 6 per cent in the past two weeks alone, according to calculations by Paul Ashworth, chief US economist at Capital Economics. That could mean the April unemployment rate will reach 10 per cent, he added, which would compare with the financial crisis peak. 

Over the past month, weekly jobless claims figures have become an important bellwether for policymakers and forecasters, as they provide the most up-to-date snapshot of the US labour market. Friday’s non-farm payroll report is expected to show a smaller hit to the American workforce since the survey period ended in early March, before the worst effects of the coronavirus-related shutdown were beginning to be felt.

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US president Donald Trump has warned that the nation’s coronavirus death toll could reach almost a quarter of a million people. He has told Americans to be ready for a “painful” two weeks.

The number of confirmed coronavirus cases in the US has surpassed 215,000, with fatalities climbing above 5,000.

The benchmark 10-year Treasury note yield remained about 0.05 percentage points lower, at 0.59 per cent. US stocks opened slightly lower, with the S&P 500 index down 0.27 per cent. 

Jeff Kleintop, chief global investment strategist at Charles Schwab, said the “huge” number indicated people were getting access to necessary benefits. “It shows the ability of local bureaucracy to process paperwork and to get money to people,” he said.

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