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Tuesday, March 31, 2020
Fed Estimates Unemployment Could Hit 32%
A new report by the St. Louis Fed says that the worst is yet to come from the Coronavirus downturn. Economists at the Fed estimate that the economic fallout from the pandemic could kill 47 million jobs. That would translate to an unemployment rate of 32.1 percent.
The numbers reflect what St. Louis Fed economist Miguel Faria-e-Castro calls “back-of-the-envelope” calculations. Faria-e-Castro said that the unemployment rate may be lower if unemployed workers drop completely out of the workforce. The figures also do not reflect the effect of the recently passed stimulus which extends unemployment benefits and subsidizes businesses that keep workers on their payrolls.
Nevertheless, Faria-e-Castro told CNBC, “These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years.”
The first wave of unemployment filings from the pandemic eclipsed records with 3.2 million new claims. That number is certain to go higher.
Faria-e-Castro says that there are 66.8 million workers in occupations that are “occupations with high risk of layoff.” These occupations run the gamut of the service economy and include sales, production, food preparation, and other services. There are also another 27.3 million “high contact-intensive” jobs at risk. These include positions such as barbers and stylists, airline workers, and food service.
Faria-e-Castro estimated that about half of these jobs would be lost in the short term. That works out to just over 47 million jobs and a jobless rate that could be worse than the 24.9 percent unemployment rate at the peak of the Great Depression.
The upside is that the downturn may be brief. As soon a the lockdown is ended, people will venture back out and there may be pent up demand. By the end of April, many laid-off workers will be returning to their jobs.
However, with a vaccine for COVID-19 at least a year away, it is unlikely that things will return to normal for the remainder of 2020. Even as people leave their homes, the need for social distancing will continue to prevent new outbreaks. Many people, especially those in high-risk categories, may not want to travel or spend a lot of time in public until the virus has been totally defeated. Still, the worst part of the downturn should be mercifully brief.
Faria-e-Castro cautions that the disruption in the job market “will be unparalleled, but don’t get discouraged. This is a special quarter, and once the virus goes away and if we play our cards right and keep everything intact, then everyone will go back to work and everything will be fine.”