MANHATTAN (CN) — U.S. markets had a tepid Thursday, as mounting unemployment numbers continue to weigh down the economy.
More than 2.4 million new unemployment claims were filed during the week ending May 16, according to the Labor Department’s weekly unemployment report. Since mid-March, when most states instituted stay-at-home orders, more than 38 million workers have filed unemployment claims.
“The unemployment data has never been more difficult to interpret than right now,” said Jim Wilcox, an economic professor at University of California-Berkeley’s Haas Business School.
He noted that so many additional workers who typically would not have been eligible were given benefits under the CARES Act. “This has really swollen the numbers,” said Wilcox, going on to note that the monthly jobs reports also show skewed data on who is actively looking for employment. “In a lockdown, how many people are actually looking for jobs or can look for jobs?”
For the second week, the Labor Department included “pandemic unemployment claims” that have been filed with the federal government by those affected by the Covid-19 pandemic who would not normally be covered by unemployment.
Only 29 states reported pandemic unemployment claims for the week ending May 9, for a total of 841,000 such claims. During the week ending May 16, 2.2 million filed such claims.
The question now is, how quickly will those jobs come back?
“Millions and millions of jobs will come back, but they won’t come back to exactly the same employers,” Wilcox said, adding he expects the unemployment rate to come down “maddeningly slowly” in the coming months.
Wall Street has remained overall immune to unemployment numbers, as they largely have fallen within the expected range. Still, the compounding pressure of 38 million unemployed over nine weeks dampened markets.
Despite a huge rally on Monday and smaller boost on Wednesday, the Dow Jones Industrial Average lost 100 points by the closing bell, a 0.4% decrease. The S&P 500 and Nasdaq had even greater percentage losses, at 0.7% and nearly 1%, respectively.
Recently, markets have recently received boosts from announcements by the Federal Reserve and various stimulus packages out of Congress. Investors will have to wait until after Memorial Day, however, as the Senate adjourned for recess.
The Trump administration seems in favor of a fourth stimulus package, with Treasury Secretary Steven Mnuchin saying on Thursday there is a “strong likelihood” another stimulus will be necessary.
But even as other GOP senators desperately want another stimulus package, the gradually declining unemployment claims have emboldened some conservatives to throw cold water on the idea of extending unemployment benefits.
In comments to House Republicans earlier this week, Senate Majority Leader Mitch McConnell vowed that the $600 in weekly unemployment benefits “will not be in the next bill.”
The U.S. Chamber of Commerce also has come out against continuing the additional unemployment benefits, suggesting instead “return to work” bonuses and other incentives to drive up employment. “There are a number of ways to do it, but it would be a mistake to simply continue what is in the CARES Act,” said Neil Bradley, chief policy officer at the U.S. Chamber.
Bradley noted that the $600-per-week bonus on top of existing unemployment benefits was created quickly based on an average across various geographical locations and did not take into account cost of living and other factors. “The great problem with averages is that they can be incredibly distorting,” he said. “What we can’t do is return to the $600.”
The July 31 cutoff for the unemployment benefits frightens some, particularly with certain scholars estimating as much as 42% of the recent layoffs could become permanent.
During a virtual roundtable discussion on Thursday between Federal Reserve governors and business leaders, many emphasized the huge disparities in unemployment in poor and minority neighborhoods.
“We have a modern-day image of what 20% unemployment looks like,” said Amanda Cage, who serves on the Federal Reserve Bank of Chicago’s advisory council. “It looks like Englewood or South Side Chicago.”
Wilcox says if the additional unemployment benefits are allowed to phase out, the result will be disastrous. “If it just expires and there’s no replacement, it will take a huge toll on consumer spending, and ability to pay rent, and mortgages, and everything that people buy,” he said.
He noted lawmakers could scrap the $600 payments and just double what each state grants in benefits. “I gotta believe you’re going to see something,” he said
The true effect of rising unemployment may not yet be fully understood, some experts say.
“It’s likely that the latest numbers do not reveal the full extent of the financial devastation faced by millions of American families,” New York Federal Reserve Bank President John Williams said in a speech on Thursday.
“What we don’t know is what the shape or timescale of the recovery will be,” Williams said. “It’s going to be some time before we have a clearer view of the effects on other industries, including autos, higher education, manufacturing, and professional services.”
The effects of the stay-at-home orders are not yet fully known, but research candidates at the University of California-Berkeley found that the lockdown orders “accounted for a significant but minority share of the overall rise in unemployment claims.”
The study, which examined unemployment claims per state, laid most of the blame for unemployment on consumer uncertainty and supply-chain disruptions due to the Covid-19 pandemic. “So long as the underlying public health crisis persists, undoing stay-at-home orders will only bring limited economic relief,” the study argues.
More than 5 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and roughly 330,000 have died. In the United States, more than 1.5 million people have contracted the novel coronavirus and about 94,000 have died.