An unemployment rate of 23%? The real jobless picture is coming together

As the economic shutdown associated with coronavirus prevention measures nears the completion of its first full calendar month, a clearer picture is emerging of just how hard the hit has been to U.S. workers.

An economy that had been near full employment just two months ago is now in its most dire straits since the Great Depression. New filings for weekly jobless claims, reported Thursday, added to the gloom with another 4.4 million applying for unemployment insurance.

That brought the five-week total to more than 26 million. While bad enough on its own, it helped to complete a picture that likely will show the U.S. with its highest unemployment rate in about 87 years.

How high that number will get is still unclear when the Labor Department reports the April nonfarm payroll numbers in two weeks.

However, the current numbers look bad. The  amount of people getting benefits compared to the total size of the labor force, a measure the government calls the “insured unemployment rate,” is at 11%, the Labor Department said. 

Rolling in the rest of the jobless pushes the headline jobless rate that the Bureau of Labor Statistics reports would be a “barely believable” 23%, said Paul Ashworth, chief U.S. economist at Capital Economics.

Most economists, though, think the actual reading likely will be closer to 10% to 15% due to the vagaries of how the BLS computes the rate. Ashworth himself sees the level at the high end of that range, though he said it may not be quite as bad as it looks on the surface.

“A surge in the unemployment rate to more than 15% would invite comparisons with the Great Depression, but we think those are misplaced because many of the unemployed will return to paid employment when the lockdowns are lifted,” Ashworth said in a note. “Nearly all of the increase in unemployment in March was due to temporary layoffs rather than permanent job losses.”

Ashworth expects the unemployment rate to come down quickly once the economy restarts — perhaps falling to 10% by summer and below 7% by the end of the year.

Federal Reserve economists released a study a week ago that has grabbed some attention on Wall Street. The central bank, studying weekly payroll data from processing firm ADP, indeed found that of the 18 million or so jobs lost in the first weeks of the lockdown were largely temporary layoffs.

Those separations, though, were more than double the 8.8 million jobs during the entire Great Recession, the Fed found.

That total is important as it will provide a fuller picture of the jobs situation than was apparent from the March report earlier this month. That count showed a decline of 701,000 but did not represent the full damage because the sampling happened before the worst of the job losses. The Fed estimated that 13 million more jobs were lost in the last two weeks of the month, after the period the BLS used for its estimate.

Rolling together all the data since the sample week for the March jobs report shows about 25 million people newly unemployed, which would indicate a jobless rate of about 20%, said Citigroup economist Veronica Clark. However, she also thinks the actual number will be lower in part because a number of those filing for benefits while waiting to go back to work will not be counted in the unemployment rate.

At the same time, she said the worst of the unemployment news may be behind us.

“While still at a very elevated level, it is a positive sign that initial filings for unemployment benefits appear to have passed their peak following the initial wave of job losses in late-March/early-April,” Clark wrote. “We expect initial claims to continue to decline over the coming weeks, reflecting resolutions of capacity issues at state offices, as people who were not previously able to file a claim given the volume are now able to get through.”