If you want a quick reading into current economic conditions, the best way is to peek at initial jobless claims. Prior to the COVID-19 global pandemic, the U.S. labor market had been robust and suggested more gains to come during the boom phase of the business cycle. In the blink of an eye, everything turned upside down and came to a screeching halt. During March madness, businesses shut down, millions of Americans were laid off or furloughed, and productivity cratered. The coronacrisis traveled from East Asia to Western Europe to North America, and a second wave might make the outbreak come full circle.
Out of Work
According to the Department of Labor, initial jobless claims spiked to a record high 3.283 million for the week ending March 21, up from the previous week’s 282,000 claims. Analysts had expected a blood bath, projecting a reading of between 1.1 and 1.5 million.
The measurement is the highest it has ever been since the federal government started tracking this data in the 1960s. The previous records occurred during the Great Recession and in October 1982 with 665,000 and 695,000, respectively.
The job losses were seen across the board, but the accommodation and food services sectors were the most impacted by the coronavirus outbreak. Arts and entertainment, health care, manufacturing, recreation, transportation, and warehousing saw considerable increases in jobless filings. The biggest jumps in Americans filing for unemployment benefits were situated in Pennsylvania (+378,908), Ohio (+187,784), and California (+186,809).
The four-week moving average, which eliminates week-to-week volatility, surged to an all-time high of one million. Continuing jobless claims also surged to 1.8 million, beating the median estimate of 1.71 million
Despite the devastating reading, this may be good news for financial markets.
It might be counterintuitive, but if the initial jobless claims fell short of forecasts, it would have been bad news for the stock market. Perhaps even if the estimates were accurate, it would still be bearish for equities. Now that the cat is out of the bag and the bag is in the river, any future reading would likely be an improvement. Next week’s data would be difficult to top the March 21 numbers. If it does, then the market could react negatively as traders expect the bad news to linger.
This was evident on the New York Stock Exchange. Before the figures were announced, the Dow Jones Industrial Average was down more than 500 points in pre-market trading. Soon after the data were published, the leading index wiped out all its losses. At the opening bell, the Dow climbed more than 200 points, the S&P 500 picked up 1.23%, and the Nasdaq Composite Index rose 1.2%.
Why? The stock market is forward-looking.
Federal Reserve Chair Jerome Powell’s recent display of confidence also reassured investors, telling NBC’s Today:
“This is a unique situation. People need to understand, this is not a typical downturn. At a certain point, we will get the spread of the virus under control. At that time, confidence will return, businesses will open again, people will come back to work. So you may well see a significant rise in unemployment, a significant decline in economic activity. But there can also be a good rebound on the other side of that.”
Off to Work We Go?
President Donald Trump wants to reopen America, send everyone back to work, and pack churches by Easter. Is this a reasonable expectation? Health experts recommend caution, warning about second and third waves as we are beginning to witness in the Far East. Businesses do have a rough timeline of when they want to restart operations, and Trump appears willing to ring the bell, even if it might be a tad premature. The White House is stuck performing a balancing act, choosing between keeping everyone safe and revving up America’s economic engine.
Read more from Andrew Moran.