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Another 2.5 Million Americans Expected to File for Unemployment Benefits

Early in the North American session today, the Unemployment Claims forecast for the previous week shows that another 2.5 million Americans have filed for unemployment benefits. Coupled with the data for April and the breakdown we have seen from breaking down last week’s NFP, the result is a grim picture for the largest economy in the world.

Since February, forty million Americans have seen a major work disruption, but only less than half of these disruptions have accounted for the rise in unemployment. In other words – the worst is yet to come.

On the chart above, spot the elephant in the room – the unemployed on temporary layoff increased dramatically in April. May should see another increase, only judging by the fact that some  states are still close and some of them just announced they would remain closed through to July.

These are not just “numbers,” as many argue – these are people staying home in the hope they will have a job to get back too. One thing both economists and politicians agree upon is that the longer the pandemic crisis continues, the less likely that businesses will be able to hold onto those jobs for their employees.

Fiscal Dilemma Ahead

Faced with the unknown as to the length of the COVID-19 crisis, governments all over the world, not only in the United States, must choose between two evils.

One is that they will “print” their way out of it – provide unlimited help to businesses and families during the crisis, indebting the country and risking inflationary pressures in the future. Another one is the wait and see approach.

In the first case, the argument in favor points to a lack of inflation now so the fiscal authorities can easily hand money via diverse stimulus programs (e.g., checks in the United States). Critics however disagree in the sense that if the crisis still persists for a few months, the damage to future generations is irremediable.

The wait and see approach will likely result in businesses filing for bankruptcies. When all this is behind us, the likelihood of those businesses to restart at the same level as before is very slim. Therefore, the huge number of people in the unemployed on temporary layoff bracket will, of course, not have a job to return to. They will turn to the government for support, which causes the same spillover effects as in the first case.

Capitalism, as we knew it before the crisis, may never be the same. As economic principles are challenged, the world needs to fight its way out of this crisis.

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