The Novel Depression Expands
It cannot be overstated how fast the unemployment figures are growing and we are only a couple of weeks into the shutdown. The BLS report that came out today is lagging in a big way what is happening on the ground. Already at the very least 10 million people have lost their jobs:
Last week, initial unemployment claims came in above 2 million. This week they came in close to 7 million for nearly a total of 10 million filings within a couple of weeks. Yet this does not tell the entire story. We know from countless news stories that unemployment benefits websites across many states are being slammed and many people are giving up filing since they cannot get through. So the figures are actually worse than they appear and next week they will be worse as more people get through to file.
Why do we suspect this will be worse than the Great Depression in terms of unemployment figures? The Great Depression at its peak had a 24.9 percent unemployment rate. We are going to get there if we stay at this rate within a couple of months. To project this, just look at how many people are employed by industry:
You have 19.5 million Americans working in “office admin support” roles that are largely paid on an hourly rate. You have 14.3 million in sales (hard to do sales when you are unable to get out with clients). You have 13.4 million in food preparation which is clearly been cutting aggressively. Another 8.6 million are retail sales workers (most are not working and not getting paid since most are hourly). Another 7.5 million in food and beverage serving work that are not getting paid. That is 66 million jobs with extremely high risk of being out of work based on the shutdown guidelines. Of course the other occupations are also working from home to some degree and many will be laid off if this continues.
To get to the peak of the Great Depression level of unemployment we would need to hit 36.3 million workers out of a job. The country already has 10 million filing for unemployment benefits within two weeks. At this rate, come June or July we are going to see high teens and into the 20s in terms of the unemployment percentage.
What is troubling is that half of the country was already living paycheck to paycheck before this coronavirus hit. A record in the stock market, a historically low unemployment rate, and easy access to debt simply covered the grim reality that we are now experiencing. That reality is that there wasn’t much there for the average worker already to begin with. Two weeks is all it is taking to send millions of Americans off the financial deep end. People are going to miss mortgage payments, car payments, student debt payments, and this will rippled into the financial system.
This Novel Recession is going to be painful. Some expect a V-shaped recovery but that doesn’t seem likely. Once the economy opens, up it is likely to open up slowly. If you look at China, many places are opening up but everyone needs to wear masks, some places have temperatures being checked, and other places have strict social distancing guidelines. Will people take their families to movies once they open up or to crowded locations knowing how contagious this virus is?
This is going to be a painful recession and the virus is accelerating the already deep economic frailty in many economies. Let us hope this doesn’t last longer than a few months.