Millions of Americans have been furloughed or laid off in recent weeks because of COVID-19, triggering an unprecedented wave of initial claims for unemployment insurance since mid-March. Although initial claims are slowing, these circumstances are taking a toll on consumers’ ability and willingness to spend, which is a significant driver of the U.S. economy.
Continued Claims Still Rising as Weekly Initial Claims Slow
The Department of Labor reported that for the week ending May 2, initial unemployment claims declined for the fifth straight week, but still saw an additional 3.169 million initial claims filed. With initial claims above 33 million and millions of continued claims, the U.S. unemployment rate is now estimated to be between 22.1% and 26.0%.
The seasonally adjusted initial claims for the week ending April 25 were revised up to 3.839 million. Coupled with pre-pandemic claims and continued claims, the estimated number of unemployed people in the U.S. now sits between 36 million and 42 million.
By state, some of the largest non-seasonally adjusted increases in initial claims from March 15 through the week ending May 2 were:
Roughly half of the U.S. states now have protocols allowing businesses to reopen portions of their economies. In the coming weeks, states will resume some normal business activity under cautious restrictions, such as limiting the volume of customers, requiring workers and patrons to wear masks and enforcing social distancing. Across most states, this still largely applies to retail, restaurants and religious services. For other experience-based, close-contact businesses such as hairdressers, gyms, theme parks and music venues, the road to recovery will look very different.
Disney, which reported a $1.4 billion quarterly loss this week, is planning to open Shanghai Disneyland on May 11. With capacity set at 30% and significant sanitation measures, the company plans to use this opening as a blueprint for opening its U.S. parks in the future, although dates have not been set.
Increases in Job Loss Drive Consumer Spending Down
With millions out of work, the U.S. economy’s key driver, consumer spending, plunged 7.5% in March, reflecting the mounting toll of the coronavirus pandemic. This is the sharpest monthly drop on record, exceeding the previous record decline of 2.1% in January of 1987. Personal incomes also fell 2.0% last month, with wages and salaries – the largest component of personal income – dropping 3.1%. Overall, according to a March report from the U.S. Bureau of Economic Analysis, “consumers canceled, restricted or redirected their spending.”
Unlike in previous recessions, initial unemployment claims during the pandemic have been front-loaded. The heaviest current losses have come early, as opposed to the Great Recession, for example, when the largest initial claims came months out. For May, initial jobless claims should hover around 11 million for the month. Weekly claims should continue to decline, from more than 3 million weekly to 2 million or less. The substantial deceleration in initial claims is forecasted to continue into June and July, based on the majority of states opening and restrictions beginning to ease. The magnitude of the deceleration, however, will depend on how many states open and how rapidly businesses bring back their employees.
ThinkWhy continuously monitors and forecasts labor data at all levels, measuring impact to MSAs and businesses across the country. Stay current with us. We are here to support organizations and provide insights during the economic downturn as well as the recovery phase.