US Jobless Claims drop for the third week: What defines progress?

• Initial jobless claims fall to 4.427 million, continuing claims rise to 15.976 million.
• April non-farm payrolls will set record for job losses.
• Will continuing claims begin to show improvement if commercial activity resumes?
• Unemployment figures define risk parameters for the dollar.

The rolling disaster in the US labor market added another four million people to the unemployment rolls bringing the total to more than 26 million in five weeks.  

But even as the impact of the job losses and the massive drop in consumption in March and April drive economic growth into reverse, the April 17 initial claims figures were 36% lower than the peak at 6,867 million three weeks ago.

Restarting the economy vs hospitalization

As several states begin to reopen commercial activity and some workers are recalled to their jobs the initial consideration for government authorities will be  public health, any appreciable increase in the hospitalization rate will bring the opening policies into queation. 

 It is important to remember that the purpose of the shutdowns was not to eliminate the Coronavirus in the population, which is likely impossible, but to slow the transmission rate and prevent the health care system from being overwhelmed.

That goal seems to have been achieved.  Whether it is because the original estimates of how many people would require medical attention was vastly overstated, or because the lockdowns achieved their goals, will require much statistical analysis to define.  

Even in New York City and state the epicenter of the viral outbreak in the United States, there are, according to Governor Cuomo spare hospital beds and intensive care units. The system has not denied care to anyone. 

Progress in initial claims

The 36% decline in initial claims in the past month has been much faster than the drop from the peak during the financial crisis.

Reuters

From March 29, 2009 at 665,000 to 620,000 a month later on April 25 the decrease ininitial claims was 6.8%. It took almost two years until November 2010, 20 months, for claims to register a 36% decline.

Reuters

GDP, job losses and the business cycle

The economic contraction from the far greater numbers of unemployed and the speed of their release this time will probably be much deeper than anything the US economy has witnessed before. 

Estimates for the first quarter GDP, to be released by the Bureau of Economic Analysis on April 29, are around -4%. Projections for the second quarter are much wilder, ranging from -5% to -30% and lower.  The situation is so unique, with the main variables in constant flux and more than two-thirds of the quarter to go, any estimates are largely educated guess work.  

In addition, the nature of the current job losses is not the same as those caused by a standard business cycle recession, of which the slowdown around the financial crisis was an extreme example.  

In cycle recessions the economic justification for employment has disappeared.  Business and consumers become overextended, consumption slows, pushing business to cut employment which further reduces employment until the cycle bottoms, often helped in the turn by government and central bank intervention.

That cycle may yet be the case this time as many economist are anticipating.   But this cycle also has a built in reversal. As governments lift the shutdown orders and provided there are no dangerous spikes in hospitalization rates, business will slowly resume operation.

This was the anticipation of most owners and human resources administrators in three states when they noted whether their furloughs were temporary or permanent as required by local law.

California firms with at least 75 employees reported that just 7% of their March and April layoffs were considered permanent. 

Colorado and Washington have similar requirements and of the reported 23,400 layoffs this year (to April 10) nearly 75% were considered temporary by their firms compared to less than 1% in 2008 and 2009. 

Initial claims, continuing claims and returning employment

While initial claims have fallen 36% the cumulative effect of the jobs losses is better given by the continuing claims figure. This number  will continue to rise until people start to run out of benefits after six months or more workers start to return to their jobs than are laid off in a week.

Using the financial crisis analogy again it took a year for continuing claims to fall 30% from their peak of 6.635 million in May 2009 to 4.668 million in May 2010.

Reuters

Continuing claims are still soaring at 15.976 million in the week of April 11 and it is too soon to be looking for improvement.

The question is how many workers will be returning to their jobs as state governments lift their shutdown orders?

We do not know the answer yet but the place to look is in the weekly continuing claims numbers.

Conclusion: and the Dollar

The US currency has been the risk choice of the pandemic as it usually is in times of global turmoil.  As the crisis has unfolded its funding and safety status have been in constant demand.  The consolidation of the past two weeks stems from uncertainty about where the global economy is headed. 

Will the locked down industrial economies be able to reconstitute their activity swiftly and thoroughly? The answer is unknown, but for the US at least, the weekly continuing claims will give an indication if the dollar’s risk role is coming to an end.

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