Above photo: By Shannon Stapleton, Reuters.
Large fiscal stimulus is needed.
Initial unemployment insurance (UI) claims for the week ending last Saturday, March 14, showed an increase in initial UI claims of 70,000 from the prior week—from 211,000 to 281,000. This was the first official labor market data release to show the early signs of the coronavirus shock. Prior to this week, unemployment insurance claims had been hovering between roughly 210,000 and 230,000 for more than two years. The jump last week was the biggest one-week increase since 2012 (and with an increase of 33%, it was the biggest increase in percent terms since 1992—bigger than anything we saw during the Great Recession). For comparison, the increase of 70,000 last week was slightly more than the increase of 61,000 due to Hurricane Harvey in the week ending September 2, 2017.
But today’s hurricane-sized increase is nothing compared to what we can expect in coming weeks. Today’s numbers capture unemployment insurance claims from last week. While media reports show layoffs began accelerating last week, if a worker was laid off last week and waited to apply for benefits until this week, they are not in these data. Further, while coronavirus layoffs began in earnest last week, the full weight of this economic shock is still ramping up as businesses realize what they are up against.
This means that these numbers are just the leading edge of the labor market impact of the coronavirus shock. Policymakers must not take comfort in the fact that they weren’t more extreme. By summer, millions will likely be laid off, or not hired when they otherwise would have been. The coronavirus relief package signed into law last night was an important first step in fighting this crisis. Policymakers should quickly pass a big fiscal stimulus package. This “phase three” package should finance a sizable amount of household consumption (including through a major expansion of unemployment insurance), give fiscal aid to state governments, provide a payroll tax credit to businesses to not lay off workers, ramp up direct government purchases of things like medical equipment to help fight the virus, and make sure the duration of all measures to address the coronavirus economic shock are determined by economic conditions, not arbitrary timelines. Policymakers must act quickly to help limit the number of U.S. workers and their families who suffer the economic catastrophe of being laid off during a recession, and to ease the burden of those who do.