Fathom has suggested that the fallout from COVID-19 would lead to the biggest economic shock since the 1930s. Economic data released over the past couple of weeks help to confirm that view. Thursday’s release of US initial jobless claims showed an unprecedented spike to 3.3 million in a single week. That sort of number is multiples of the peak during the Global Financial Crisis. The US labour market has been put on sudden stop.
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The initial weekly spike reflects unprecedented government restrictions on movement, and the shutdown of non-essential shops in many places, job losses from COVID-19 are likely to be concentrated at the beginning — at least initially. During the previous crisis, continuing jobless claims peaked at over 6 million. It seems likely that the US will exceed this figure in April.
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Even though this has been the biggest negative shock to the US labour market on record, it does not mean that the total loss in GDP will also be the largest in history. In this case, many of these job losses are by government design in order to enforce social distancing and prevent the spread of the virus. The corollary is that lawmakers have shown a keen desire to support workers and businesses through this period. Lawmakers in DC have designed a $2.2 trillion fiscal stimulus package that will increase unemployment insurance and offer loans to companies (among others). That scale of increase in borrowing is more akin to wartime measures than traditional countercyclical stimulus. The programme’s aim is to prevent businesses failing and workers losing skills, so that the economy can eventually be turned back on without the severe negative costs associated with most recessions. Whether that will work depends on the health response to the virus. It is still too early to tell.
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