While the devastating effects of coronavirus on economic activity became evident as of April, the United States, which has become one of the centers of the pandemic, is preparing for the largest unemployment rate in its history. After the virus was detected in the US, the world’s largest economy, and then spread rapidly, exceeding 1 million cases, the public authority was forced to implement quarantine measures to take the outbreak under control. The service sector, which makes the biggest contribution to employment gains, got a huge blow following the measures. In addition, manufacturing, the locomotive sector of the economy, came to a standstill after the damage to global supply chains as the pandemic simultaneously spreads all around the world.
The major downturn experienced by these sectors, which form the dynamics of the economy, resulted in a loss of labor in the United States, which had experienced the lowest unemployment rate in 50 years a few months ago. In the earliest indication of this loss, data published by the Labor Department yesterday showed that the US jobless claims were 3.17 million, above expectations of 3.0 million, within the week ended May 2. Jobless claims, which hit an all-time record high, 6.87 million at the end of March when the first effects of the outbreak began to be seen, reached 33 million in total in seven weeks, despite the slight decline of the last week. In addition, according to the National Employment Report published on Wednesday by the ADP Research Institute and Moody’s Analytics cooperation, change in US non-farm private sector employment was announced as minus 20.24 million, well below expectations of minus 20.05 million in April. In March, the decline was just 27K. The private sector employment had declined for the first time after 10 years in March. And in April, with a new decline, it indicated the biggest loss of all time.
U.S. Prepares for a Historic Challenge
About the current situation of the employment in the US, Fed’s Clarida said that the U.S. economy is likely to contract sharply during the second quarter and that the unemployment rate could surge due to intentional business shutdowns prompted by the coronavirus pandemic. “U.S. gross domestic product could contract as much as 30% on an annualized basis this quarter and unemployment could reach 20%” said another important figure, Dallas Fed President Robert Kaplan. Minneapolis Fed President Neel Kashkari said that the nonfarm payrolls in the United States will show lower employment losses due to the Coronavirus outbreak, because many people are not actively looking for work in the current environment. Kevin Hassett, a White House economic adviser, also said the U.S. economy is likely to face a historic shock when the unemployment rate rises to 16 percent or above this month.
Fed members’ predictions for a rise in unemployment have been strengthened by expectations of the US economy is preparing to fight the hardest unemployment in history, the positive trend in unemployment claims, and the loss in private sector employment. The markets will be focused on unemployment data, being announced today at 14:30 (GMT+2).
Unemployment Could Break a Record
Nonfarm payrolls, which refers to the change in the number of people working excluding the agriculture sector, is the most important data for markets to follow in the data set announced by the Department of Labor. Although NFP had achieved a stable performance by meeting market expectations in general in the one-year period we left behind, it had shown the first effects of the coronavirus in March and reached minus 701K, below the market expectations of minus 100K. In addition, the manufacturing and non-manufacturing purchasing managers’ index (PMI) published by the Institute for Supply Management (ISM) in April had declined strongly and indicated a strong contraction in the manufacturing and service sectors. Hence, we believe the strong contraction will continue in the US. However, given the record decline in private sector employment in the National Employment Report published by ADP and the jobless claims, we believe that nonfarm payrolls will fall and got closer to the market expectation of 22 million in April and that the unemployment rate announced in the data set will be closer to 20 percent, supporting the statements made.