U.S. jobless claims doubled this week, with 6.6 million people filing for unemployment benefits amid coronavirus shutdowns. That’s 1,000% as high as the peak of the Great Recession. Over the past two weeks, about 10 million people lost their jobs.
Of course, the reason Great Recession job losses don’t look quite as shocking is because they happened over a longer period of time. The enormous spike we’re seeing today is the result of millions losing their jobs at once rather than over the space of months.
Which is more dangerous? It remains to be seen.
Michelle Meyer of Bank of America Merrill Lynch pointed out that the economy has never seen a shock of this magnitude all at once.
What usually takes months or quarters to happen in a recession is happening in a matter of weeks
A new study from the University of Chicago shows that only about 34% of jobs can be performed from home. Accounting for the essential healthcare workers who make up roughly 12% of the workforce, just under half of the nation’s jobs can be done during lockdown.
Can the unemployment rate jump as high as 50%? It’s possible, but unlikely.
Not everyone who can’t work will be laid off, especially with government help in place. But that makes unemployment estimates of 32% sound very realistic. To put that into perspective, unemployment reached 24.9% during the Great Depression in 1933.
The fallout from coronavirus has been far greater than most had been predicting, calling into question whether a short, v-shaped recovery will be possible. Predictions for annual GDP growth are being revised ever lower to reflect the growing severity of economic pain the virus is causing.
This week, JP Morgan reduced its second-quarter GDP estimate to -25% from -14%. The bank warned that a v-shaped recovery was unlikely. The U.S. will probably see a recovery that looks similar to that of the 2008 financial crisis.
Federal Reserve Bank of St. Louis President James Bullard is even more pessimistic, saying the U.S. GDP could fall by as much as 50% in the second quarter .
Even if coronavirus has been contained by then, that kind of economic damage isn’t something the U.S. can just recover from and move on.
Lost jobs will translate to missed loan payments, a pullback in consumer spending, and a spate of bankruptcies among U.S. businesses. That trauma could spread to banks as they struggle to meet liquidity demands.