The coronavirus crisis and the subsequent national shutdown has already impacted employment in ways never seen before, but it’s likely that things will get worse before they get better.
The most recent data from the Department of Labor showed that 3.28 million people filed for unemployment in the week ending March 21, 2020. That figure absolutely shattered the previous weekly high of 695,000 initial jobless claims, which was set in 1982.
Data like that is why Goldman Sachs economists now say the unemployment rate could climb to a record 15% this year.
That’s an increase from the 9% unemployment those same economists were predicting earlier this month, and a far cry from their February prediction that unemployment would fall to a 67-year low this year.
As the virus’ reach and impact have deepened over the last few weeks, Goldman Sachs economists predict unemployment will skyrocket from the 3.5% where it stood in February.
“These forecast changes reflect the net effect of two directionally offsetting changes,” the Goldman Sachs economists wrote. “On the one hand, the anecdotal evidence and the sky-high jobless claims numbers show an even bigger output and (especially) labor market collapse than we had anticipated. This not only means deeper negatives in the very near term but also raises the specter of more adverse second-round effects on income and spending a bit further down the road.”
Goldman Sachs and other economists suggest that the unprecedented rise in unemployment is due to the outsized impact of the shutdown on the service industry, those whose jobs cannot be done remotely.
“Unfortunately, the service industry – hospitality, retail and leisure specifically – will likely feel the sharpest and most immediate economic pain from the coronavirus outbreak,” First American Chief Economist Mark Fleming wrote in a report this week. “There are over 130 million workers in the overall service sector, which accounts for 86 percent of total nonfarm employment, so job losses are expected to be high in this labor-intensive sector.”
That’s a recipe for record-breaking levels of unemployment.
Of course, Goldman Sachs’ predictions are modest compared to those of Federal Reserve Bank of St. Louis President James Bullard, who recently told Bloomberg that unemployment could climb to 30%.
Goldman Sachs suggests that the current climate should be a relatively short-lived one.
“Both monetary and fiscal policy are easing dramatically further, which will tend to contain these second-round effects and add to growth down the road,” the economists wrote of the steps the federal government and Federal Reserve have taken in recent days to stem the downturn.
“We have not made major changes in our assumptions on the time path of the recovery,” the report said. “While the uncertainty is substantial, we expect the lockdowns and social distancing to result in sharply lower new infections over the next month, and our baseline is that slower virus spread and adaptation by businesses and individuals should set the stage for a gradual recovery in output starting in May/June.”