(Forbes) The U.S. government will release its jobs numbers tomorrow for new unemployment claims. The labor market is going to get whacked again.
It might not look as bad as the roughly 6.6 million who filed claims the week before, double the number who had filed a week before that, but investment firms are already willing to up the ante on their unemployment claims bets.
On Wednesday, Barclays said it now expects jobless claims to come in at 5.5 million for the week ending April 4, up from its previous estimate of 4.5 million.
It’s worse than we thought, Michael Gapen, economist for Barclays in New York, wrote in a note to clients today. Gapen and his team expect a “continued sharp deterioration in labor markets” because of the ongoing pandemic.
Like President Trump’s public health team, Barclays has updated “the model.”
Even if Barclays’ new model is wrong, and its first estimate from the older model of 4.5 million new claims is right, that would be nearly 15 million people out of work due to the pandemic in just three weeks, or around one million people a day for the last three work weeks.
One bit of good news is that using a state-level database of press articles and other sources from states reporting unemployment figures, such as Pennsylvania, all signs point to a decline in the number of claims relative to last week in northeastern states. That’s because most of the service sector employees have already been laid off, with the latest round being those getting let go because online orders may have been less than anticipated.
But the bad news is that reports from Florida suggest there is going to be a spike in jobless claims because government enforced stay-at-home policies went into effect a bit later than they did here in the northeast.
Based on the Barclays model, initial claims in these latecomer states alone will hit 1.8 million.
But wait, there’s more!
The new model’s forecast really sits between 5 million jobless claims on the low end to 6.5 million on the high end. Its revised forecast of 5.5 million is somewhere near the middle.
“Over the next few weeks, a recession is all but unavoidable. With double-digit unemployment, people stuck in their homes and a rising coronavirus death toll, consumer spending will suffer dramatically. The fiscal policy response will permanently alter the U.S. economy as we know it. We are now living in a ‘Modern Monetary Theory’ world, which means that deficits don’t matter and governments can issue fiat currency at will.”
- Marc Odo, Client Portfolio Manager, Swan Global Investments
The CARES Act, passed by Congress in late March, provides an additional $2.2 trillion of support but not all to the unemployed, of course. It was designed to build a bridge between employers and their lenders, clients, in an attempt to keep people employed as revenue falls due to demand destruction.
Self employed people, such as gig economy workers like Uber drivers and sole proprietors, are included in the CARES Act and will be allowed to collect unemployment dependent on their tax filing status and income.
Demand destruction, the new buzzword since supply chain disruption was no longer the topic du jour after Italy became the epicenter of coronavirus, means revenue will be squashed in key service sector businesses as social distancing measures are in place.
In the Berkshires in Massachusetts, for example, the popular Jacob’s Pillow dance performances that drive thousands to the region all summer long, has already been canceled. It is unclear if Tanglewood will open.
Aquariums and zoos are closed.
Pro sports are on hold.
In Manhattan, the city does sleep. Nightlife is closed. Across the Hudson, New Jersey public parks are closed. If this keeps up in the summer months, it is hard to imagine the Jersey Shore being closed and law enforcement being able to police that.
Real estate investors who survive on summer renters to their properties from June to August would be crushed for the year if we are dealing with social distancing in the summer.
Getting a three-month reprieve on loans and rent is nothing if that has to be made up once the economy starts again. It’s just one huge bill to jumpstart a business. Or at the very least, without debt forgiveness, a sizable increase in the monthly overhead as companies just stretch out payments left unpaid during government mandated lockdown orders.
How all this gets paid is a mystery. Unless the Treasury Department is paying for it all.
What was once just a China health crisis is now a global pandemic in its fourth week (as measured from the time the World Health Organization declared it as such). It has turned into an economic crisis.
“The big question is what it will take to ease social distancing requirements and allow businesses to re-open safely,” wonders Scott Clemons, chief investment strategist for Brown Brothers Harriman in New York.
“It is hard to see any return to normal economic functioning until the summer at the earliest,” he says.