WASHINGTON (Reuters) – The number of Americans filing for unemployment benefits surged by the most since 2012 to a 2-1/2-year high last week, as companies in the services sectors laid off workers because of the coronavirus pandemic.
The darkening economic outlook was underscored by other data on Thursday that showed factory activity in the mid-Atlantic region plunged to its lowest level since 2012 in March, as the highly contagious virus disrupted the supply chain.
The coronavirus has crippled the transportation, leisure and hospitality industries, as well as the manufacturing sector. Economists are predicting a surge in job cuts and a recession by the second quarter. Some believe a downturn is already underway.
“This shouldn’t come as any surprise as the government has sent people home from work to stop the virus spread,” said Chris Rupkey, chief economist at MUFG in New York. “Spending and jobs in the economy won’t come back until the virus counts of positive cases level out.”
Initial claims for state unemployment benefits jumped 70,000 to a seasonally adjusted 281,000 for the week ended March 14, the highest level since September 2017, the Labor Department said on Thursday. Last week’s increase was the largest since November 2012. Economists polled by Reuters had forecast claims would increase to 220,000 in the latest week.
Jobless claims are the most timely labor market indicator, and last week’s acceleration offered a glimpse of what lies ahead, with economists predicting sharp declines in employment in the months ahead and a surge in the unemployment rate, which is currently at 3.5%.
The Labor Department attributed the jump in claims to COVID-19, the respiratory illness caused by the coronavirus.
“A number of states specifically cited COVID-19 related layoffs, while many states reported increased layoffs in service related industries broadly and in the accommodation and food services industries specifically, as well as in the transportation and warehousing industry, whether COVID-19 was identified directly or not,” it said.
The coronavirus outbreak has forced millions of Americans to hunker down in their homes, with state and local governments closing schools, bars, restaurants and theaters in an escalation of “social distancing” policies aimed at containing the virus.
Ford Motor Co (F.N), General Motors Co (GM.N) and Fiat Chrysler Automobiles NV (FCHA.MI) (FCAU.N) have announced temporary plant closures.
The death toll in the United States from COVID-19 has topped 150 and almost 9,000 people are infected, according to a Reuters tally. Nearly 9,000 people have died across the globe and about 219,000 have contracted the disease.
Health experts, however, say the figures are much higher given that testing is not readily available in many countries, including the United States. The U.S. Federal Reserve aggressively cut interest rates to near zero on Sunday, and pledged hundreds of billions of dollars for asset purchases and to backstop foreign authorities with the offer of cheap dollar financing.
The Trump administration is pushing for a $1 trillion stimulus package, which Treasury Secretary Steven Mnuchin urged the U.S. Congress to pass by early next week.
The U.S. central bank has also taken additional measures, including opening the taps for central banks in nine new countries to access dollars on Thursday.
Stocks on Wall Street were trading mixed as investors pondered whether actions taken by governments and central banks would be adequate to avert a global recession. The dollar .DXY traded higher against a basket of currencies while U.S. Treasury prices rose.
Economists say the upcoming economic downturn in the United States is most likely to assume a U-shape. JPMorgan on Wednesday estimated that first-quarter gross domestic product would contract at a 4.0% annualized rate followed by an even steeper 14.0% decline in the second quarter.
It forecast the economy would contract 1.8% this year and the unemployment rate would rise to 5.3%.
“The fact that the unemployment rate ends the year substantially higher than the current level should make clear why it would not be accurate to describe this as a V-shaped recovery,” JPMorgan economist Michael Feroli said. “Even with a strong third-quarter (growth), that strength is not nearly enough to undo the expected damage to the labor market.”
The Labor Department said only claims for Pennsylvania were estimated last week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 16,500 to 232,250 last week.
The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of March’s employment report. Claims increased 66,000 between the February and March survey periods, supporting economists’ views that job growth slowed this month.
The economy created 273,000 jobs in February, matching January’s tally, which was the largest gain since May 2018. Labor market strength has been the main driver of the longest economic expansion on record, now in its 11th year.
The U.S. Travel Association estimated this week that the coronavirus outbreak could eliminate 4.6 million travel-related jobs in the country this year. Projections from the National Restaurant Association were even dire, with the lobby group predicting the industry could lose 5 million to 7 million jobs over the next three months.
In a separate report on Thursday, the Philadelphia Fed said its business conditions index plunged to a reading of negative 12.7 in March, the weakest since July 2012, from 36.7 in February. The survey’s measures of new orders at factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware plunged to -15.5 this month from a reading of 33.6 in February. Labor market conditions also softened this month.
Manufacturers were also less optimistic about business conditions and capital expenditure over the next six months than they were in February. The report came on the heels of a survey from the New York Fed on Monday showing a measure of business activity in New York state plunged in March by the most on record to its lowest level since 2009.
The reports suggest manufacturing activity likely contracted in March after barely expanding in February. Manufacturing, which accounts for about 11% of the economy, is also being hamstrung by problems at Boeing (BA.N) related to its grounded 737 MAX plane and an oil price war between Russia and Saudi Arabia that has undercut crude prices and hurt U.S. producers.
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