U.S. Unemployment Rate Closing In On Crisis Era Highs but Job Losses Slowed Last Week

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U.S. unemployment could be closing in on financial crisis era highs after the coronavirus shutdown torpedoed the labour market, although the pace of job losses slowed last week, Department of Labor data suggested Thursday. 

There were 11.9 million continued unemployment insurance claims in the U.S. for the week ending April 11, Department of Labor data shows, which makes for an insured unemployment rate of 8.2%. That's a record high for insured unemployment as it surpasses the 7% peak set back in May 1975, although this is different to the Bureau of Labor Statistics' definition of unemployment, which is the main jobless gauge included in the non-farm payrolls report. 

The Bureau of Labor Statistics said earlier this month there were 7.1 million unemployed people in America at the end of March, a number that could have increased by 5,245 million last week if the Department of Labor data released this Thursday is anything to go by. A highly imperfect back-of-the-envelope calculation that combines the DoL claims and Bureau's jobless figure implies an unemployment rate of 7.3% as of April 11, just less than the 7.9% implied unemployment rate for the UK as of April 15.

The U.S. has not seen a 7.3% jobless rate since September 2013 but many economists have forecast it will see far higher than that in the weeks and months ahead as the effect of the coronavirus-induced economic shutdown crystalises in full. ING tipped a peak of 14% for the jobless number last week while Pantheon Macroeconomics was eyeing a possible move up to 20%, which would be the highest levels since the pre-war Great Depression. 

"Initial claims remained highly elevated, but with the 5.2mn print coming in slightly below the 5.5mn consensus, and down from 6.6mn the prior week, today's data suggest that weekly increases in claims seem to be past their peak," says Andrew Grantham, an economist at CIBC Capital Markets. 

New unemployment insurance claims were 5.2mn last week, down from 6.6mn in the prior week and below the market consensus for an increase of 5.35mn. However, and in total the initial claims number has risen more than 22mn in the last four weeks and by at least 16.6mn since the end of March, which could mean the continued claims number that drives the implied unemployment rate has much further to rise in the weeks ahead.

"Given some people will have found work and the fact there will need to be some working day and seasonal adjustment to the raw figures we tentatively estimate payrolls will fall by around 15 million with the unemployment rate hitting 14%. This would mean all the jobs gained since 2009 have been lost in the best part of a month," says James Knightley, chief international economist at ING.

CIBC's Grantham says continued claims lag initial claims by one week and that offficial outcomes should leave unemployment sitting somewhere betwee 12% and 13%. This is in part because of what are effectively 'accounting funnies'. 

Newly redundant workers must tell survey compilers that they are actually looking for new work in order for them to become classed as unemployed although given the nature of the current crisis, some layed off workers might expect to get their jobs back soon and so not be looking for new work. And this would see them overlooked by unemployment statistics.

"Payrolls rarely drop as much as claims rise, because claims tell us nothing about gross hirings, and often people who lose a job and make a claim then quickly find a new position. This time, though, we expect most of the people who have made claims to hit the payroll number, because even the regular pace of gross hiring - which isn’t happening right now - would be trivial compared the scale of the losses," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "It took years from the Crash of October 1929 for unemployment to peak, at 24.9%. The Covid-19 lockdown is on course to wreak as much havoc in two months."

Shepherdson says Google search engine inquiries inidcate a fall to around 3.5mn for the new claims number next week, which would continue the trend of decline that suggests the labour market might now be over the worst. And with the administration of President Donald Trump now increasingly contemplating a strategy for lifting so-called 'lockdown' measures and reopening the economy, there might be hope on the horizone for those newly unemployed workers. 

The Dollar Index was higher on Thursday owing to weakness in the Euro, Pound and Swiss Franc but the greenback was lower in the face of the risk-sensitive Australian, New Zealand and Canadian Dollars, indicating an improved mood among currency traders that might have roots in the increasing shift of attention among national leaders toward the formulation of strategies for exiting 'lockdown' without triggering another wave of coronavirus infections.