3.28 million American workers claim unemployment

Barclays Chief U.S. Economist Michael Gapen joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the coronavirus has impacted businesses and careers.

Video Transcript

ALEXIS CHRISTOFOROUS: Chief US Economist-- Michael, thank you for being with us. A busy morning for sure. Just first, your reaction to 3.28 million Americans applying for unemployment benefits. And should we expect that number to just continue to climb in the weeks ahead?

MICHAEL GAPEN: Well, certainly it's an unprecedented number, as you mentioned about five times, the previous historical high. It certainly reflects the effects of COVID-19 on the services sector-- significant rises in claims in about 20 states. The two states that showed the highest claims this week-- Pennsylvania and Ohio. That may also reflect manufacture-- effects on manufacturing in the goods sector as well.

I don't know if we should expect to see successively higher numbers, because these would be layoffs in that particular week. If this fiscal stimulus bill is effective at getting resources to firms on the condition that payrolls stay more or less near current levels, we may expect say a few weeks here where we get high risers, or significant increases in claims. But perhaps after that, it slows down.

So we'll certainly have to see. And whether or not this stimulus bill is effective at altering the behavior of the services sector right now would be extremely important. We do think this is the right type of package in terms of getting resources directly to households and business to prevent significant layoffs over a long period of time. But certainly, we're seeing some this week.

BRIAN SOZZI: Michael, now that you've had time to digest a shocking number like this, what does your estimate look like for the March employment report on the headline?

MICHAEL GAPEN: So the data this week will show up in the April employment report. And if you just-- all else equal, this type of rise in claims, you're looking at, say, a two percentage point increase in the unemployment rate-- again, all else equal-- in the April report. Now for March, that would take into account the rise in claims last week, which was more on the order of about 70,000.

If we look at that type of rise in claims against historical episodes-- so that type of rise would be consistent, for example, with what we saw after 9/11 or sometime around Hurricane Katrina-- a discrete event that shuts down activity, at least in one part of the region. That may trim job growth on the order of 125,000 to 175,000. So if we were running maybe at 225,000 a month previously, maybe that brings us down to around 100.

So we should see some softening in March employment. But today's number will certainly affect the April report. And at the moment, that's looking like it's certainly a very weak report. But we won't see that until-- until early May.

ALEXIS CHRISTOFOROUS: Michael, what is your reaction to the stimulus package making its way through Congress? We know that trying to get it passed has been a very partisan affair, unfortunately. The House says the Senate bill doesn't go far enough. Do you agree that it doesn't go far enough, and could this be the first of many similar stimulus packages to come out of Congress?

MICHAEL GAPEN: Look, I would-- I would look at this as a very significant, important, sizable down payment. Will we need another one? The answer to that is it depends. It depends on community spread and how long this lasts, and whether or not we get significant shocks to state finances that last much longer.

But what we know today-- so given what we know today, this is a very significant piece of legislation. Our view is that Fed liquidity support was necessary, but not sufficient. And what you needed to get a sufficient policy response was a sizable fiscal package. This is on the order of 10% of GDP. And that would seek to provide direct resources to households and business.

So there's a lot of provisions in this bill. We're continuing to look through them, each on a one-by-one basis. But I think this has been a dramatic shift in policy in the US in about 10 days' time.

So yes, maybe it sounded like there was some fractured discussions going on. But we've now had three fiscal packages is in a row. So for a moment, there is at least a willingness to get together on a package on a bipartisan basis.

It was passed 96 to nothing. Should go through the House vote on unanimous consent today or tomorrow and be signed on Friday. This has been a very rapid turn of events for fiscal policymakers in DC.

BRIAN SOZZI: Michael, real quickly here, can you prepare us-- a very key point you made on the April employment report. Can you prepared us? Does the US economy go from creating let's say 150,000 jobs a month to losing 400,000 to 500,000 a month?

MICHAEL GAPEN: So we're-- I think conservatively, yes. You're looking at something-- I think we penciled in something around 300,000 jobs lost on average per month in the second quarter. That's going from 200 a month gains previously, down to minus 100. That's a net loss of about 600,000 jobs per month.

The claims data today suggests maybe that's an overly optimistic estimate. But certainly, we're going to see some job losses here in the near term. And just alluding to Chairman Powell's comments, policy is intended to help get these people back into the ranks of employment as quickly as the virus outbreak can be contained. And obviously, we'll see if that happens.

ALEXIS CHRISTOFOROUS: All right, Michael Gapen, Barclays Chief US Economist. We're going to leave it there. Thanks so much for being with us this morning.