Some really shocking economic data is expected to be released in a few hours.
At 8:30 ET, the Ministry of Labor will release its latest weekly report on the first applications for unemployment insurance. Many economists have described this data series as the best real-time measure of the health of the U.S. labor market.
Last week, the number of first applications for unemployment insurance rose by 70,000 to a two-year high of 281,000.
But investors have probably not seen anything yet.
According to estimates by Bloomberg, Wall Street economists are looking for initial applications for the week through March 21 to a total of 1.64 million, which would be a record by far. The current record for the number of initial applications for unemployment benefits in a single week is 695,000, which was already seen in October 1982. The largest single week of initial claims during the financial crisis was 665,000 claims.
And some economists are looking for weekly application numbers that are more than twice the consensus estimate.
Bank of America Global Research economists, led by Michelle Meyer, expect initial filings to reach 3 million when the data is released on Thursday.
“Our forecast is based on a compilation of news reports showing that by Wednesday [March 18] some 720,000 applications had been filed in 19 states,” the firm wrote in a memo at the end of last week. “Based on these numbers, the first applications for unemployment benefits will easily run into the millions, reflecting the immense disruption to the US economy caused by the COVID-19 outbreak.
Wells Fargo also estimates that claims could be as high as 3 million, although the company maintains an extremely wide range of possible outcomes in its forecast, noting that between 1 million and 3 million initial claims are in play. “This will shock even the most pessimistic forecasters,” the company wrote in a memo released on Friday. “As economic activity comes to a halt, the US economy is rapidly catapulting itself into recession and requires further political intervention.
However, this data is only the beginning of what is likely to be a nasty series of employment data in the U.S. as companies have closed rapidly in the past two weeks.
Michael Pearce, senior U.S. economist at Capital Economics, said last week that some 30 million workers in the service sector are threatened with layoffs given the severity of the current economic downturn. And while Pearce expects claims to rise by “millions” last week, “it is unlikely that the bleeding will stop there”.
In a memo released Wednesday, Pearce’s colleague Paul Ashworth predicted that US annualised GDP would fall 40% in the second quarter with unemployment rising to 12%, meaning 14 million jobs will be lost due to the decline in coronavirus-related activities.
“With states already reporting an unprecedented wave of unemployment claims, we may be underestimating the impact,” Ashworth writes.
“In previous downturns, the percentage decline in employment was at least as large as the decline in real GDP, in which case the unemployment rate could reach 20%. But in this case, we believe some employers will hang on to workers if they think the closure will only last a month or two.
And the current aid package, which is finding its way through the convention halls, seems to be encouraging employers to keep their workers for the duration of this slowdown, which could take some pressure off the employment data in the coming months.
But the severity of the coronavirus outbreak and the measures already taken by employers across the country are unlikely to save investors from at least a few weeks of stunning economic reports. A trail that begins today.