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US jobless claims surge to record 3.3m as America locks down

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Via Financial Times

More than 3m Americans filed a claim for unemployment benefits last week, a record high that offers the first nationwide picture of the damage to the US economy from the coronavirus shutdown.

According to data released by the labour department on Thursday, claims rose to 3.3m for the week ending Saturday, from 282,000 the previous week. The data eclipsed consensus expectations of 1.7m, showing the staggering scale of job losses in the first full week of claims since cities and states began to restrict public gatherings and, in some cases, ordered residents to stay home.

“Nearly every state providing comments cited the Covid-19 virus impacts,” the labour department said on Thursday. States reported hotels and restaurants had been hit particularly hard, as well as entertainment, transportation, manufacturing, and healthcare and social assistance.

“It’s just disastrous on so many levels,” said Torsten Slok, chief economist at Deutsche Bank Securities. The claims data show the cost-cutting companies are doing already has serious consequences, both for growth and for the labour market, he added. 

It is by far the largest single-week rise in unemployment claims since the department began publishing records in 1967. The previous one-week highs came in October of 1982, at 695,000 claims, and March 2009, at 665,000.

Line chart of Initial unemployment claims (weekly data, 000s) showing US jobless claims at record levels

According to state-level estimates that have not been adjusted for seasonal lay-offs, Pennsylvania reported the largest number of claims at 378,900, while California claims jumped to 186,809. New York state, which has become the epicentre of the outbreak in the US, reported 80,300 claims.

Over the past week, new claims for unemployment assistance have overwhelmed the state systems that administer them, crashing websites and overloading labour agencies struggling to process claims.

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“This is an impossible-to-comprehend number. We just wiped out a year and a half of job growth,” said Martha Gimbel, a labour economist at Schmidt Futures. 

“The most important thing to remember is that this is an undercount of people suffering,” said Ms Gimbel.

The claims data only reflect people who were able to apply for an unemployment insurance benefit. Others may not qualify, had hours cut instead of getting laid off or could not get into state systems when labour agency websites crashed. Economists at Oxford Economics have predicted 15m to 20m job losses in coming weeks. 

The US unemployment rate had been at 3.5 per cent prior to the outbreak, a half-century low. Mr Slok said this week’s job losses alone could add 2 percentage points to the unemployment rate. In an interview with NBC on Thursday, Jay Powell, chairman of the Federal Reserve, said that the US “may well” be in recession already.

The US Senate has approved a relief deal worth $2tn for businesses and people affected by the coronavirus outbreak.

It will add $600 per week to state jobless benefits, which averaged $368 per week in late 2019. The Senate bill also provides for direct cash transfers outside of the state unemployment insurance systems to low-income and middle-class families through cheques worth up to $1,200 per adult earning less than $75,000 a year.

US stocks rallied for the third day on hopes of the boost from the stimulus package, with the S&P 500 gaining more than 4 per cent by mid-morning Thursday trading. US Treasuries advanced, with the yield on the benchmark 10-year note down 5.6 basis points to 0.79 per cent. The yield on the more policy-sensitive two-year note steadied at 0.3 per cent.

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Mohamed El-Erian, chief economic adviser at Allianz, said Thursday’s data highlighted “the ferocity of the sudden stop hitting the US economy”.

“[W]e’re living through a generation-defining moment,” he added.

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