April's job numbers will be 'catastrophic': economist

Gregory Daco, Oxford Economics Chief U.S. Economist, joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss the coronavirus outbreak’s impact on businesses and jobs.

Video Transcript

BRIAN SOZZI: Want to get right to Greg Daco, Oxford Economics Chief US Economist. Greg, always good to speak with you here. I want to get right to April. March is pretty much in the rear view mirror. A lot of economists we're talking to-- April and May, the jobs numbers-- the headline jobs numbers-- might be pretty ugly. What are your estimates?

GREGORY DACO: Yes, the job numbers-- they're going to be catastrophic. We've seen, just over the last week, that there were 3 million individuals filing for unemployment benefits. The numbers this week are, again, going to be really, really high-- even higher than what we saw. We wouldn't be surprised that if over the next few weeks, we see as many as 20 million people that are unemployed, and an unemployment rate that surges to 12% in April. So really catastrophic numbers when it comes to the labor market.

ALEXIS CHRISTOFOROUS: Yeah, Greg. Alexis here. Hard to believe, because, heading into this, we had unemployment at 3.6%. It was at a 50-year low. I guess the silver lining there is we did have a pretty strong economy heading into this disaster.

But I want to talk to you about when we come out the other side and what the recovery might look like. A lot of people are saying, oh, look. There's going to be all this pent-up demand, and we're just going to snap back. But how do you just snap back when millions of Americans will, arguably, not be able to get back to work, because their businesses have evaporated?

GREGORY DACO: I think that's a great question. What we're seeing today is, essentially, the collision of the economics of fear and the economics of sudden stops. People are fearful of what's happening around them. The health care system in major cities is being overwhelmed by this virus.

And at the same time, a lot of discretionary activity and service sector activity has come to a sudden stop, which has forced a lot of these small businesses to lay off their employees. That will leave a scar on the economy, because people's livelihoods, people's incomes will be affected. And I'd be very cautious with the assumption that we get a sudden rebound-- a V-shaped type of recovery. We're likely going to be a U-shaped type of recovery, barring any vaccine or any medical advance that would make this less fearful for people.

HEIDI CHUNG: Hi, Greg. It's Heidi Chung here. So given that all of these recent economic data releases have been so backwards-looking-- the initial jobless claims number that we got yesterday was our sort of first glimpse into the real damage that's being done to the economy. So going forward, what data points are you watching? And what should market participants be focusing on to really gauge the impact here?

GREGORY DACO: Well, the number one set of indicators is going to be that-- the one that pertains to confidence. We already saw, just a few minutes ago, that the Consumer Sentiment Index from the University of Michigan had the largest fall since October of 2008, and, actually, the fourth largest fall on record. And that's what the survey-- 2/3 of which interviews are done before the middle of March.

So we're looking at a more significant-- even more significant drop in confidence-- consumer confidence-- which is going to be a good indication of how people are spending. But beyond that, you're looking at road congestion data. You're looking at high frequency data, in terms of foot traffic. You're also looking at how people are generally being locked in and how severe the lock-in is. Because regardless of how people feel, if they're locked inside and can't go outside, they're simply not just going to be spending.

BRIAN SOZZI: And Greg, you know, we just got-- you know, the consensus thinking in the marketplace is that the $2.2 trillion stimulus plan we just got pretty much just plugs a hole-- just plugs a hole. What do you think the economy needs in terms of a next stimulus package to not just plug a hole, get the economy really-- really on the right path?

GREGORY DACO: Well, I think the view that if we can plug the hole is probably expected. What's reflected is that actually you're trying to plug the hole in April. But you're not plugging the hole, per se, because the issue is really this virus. And as long as it's not contained, you're going to need to pour a lot of fiscal and a lot of Fed policy stimulus to try to prevent an even deeper recession, an even graver economic outlook than we currently have.

We're looking at an economy in the US that's likely to contract 2.5%, 3% this year, and only gradually rebound over the latter part-- the very latter part-- of the year and into 2021. And no fiscal stimulus and no monetary policy stimulus is going to help with the sudden stop economics that we're seeing today. So what we need to have is proper testing across the country, severe lockdown, quarantining of people that are infected, and really trying to contain the source of the crisis, which is the virus itself.

ALEXIS CHRISTOFOROUS: And Greg, you just touched on the Fed. They are doing all they can, seemingly, to fight this pandemic, including recently announcing they're going to be buying corporate debt for the first time ever. What else can the Fed realistically do here to make a difference?

GREGORY DACO: You're absolutely right, that Fed Chair Powell and the rest of the Fed have been very proactive in providing tremendous easing of monetary policy, ensuring that markets are well-functioning-- both the Treasury market, the corporate and commercial paper market, the repo market, and many other markets, including now, with the purchase of bonds to try to ease some of the credit strains, in terms of the corporate bond market.

The Fed can do, still, a lot. It's put in place this idea of a Main Street lending facility, which I think is very important. And with about 400 billions worth of funds that will be transferred through Treasury to backstop lending from the Fed-- that should be another lifeline to small businesses looking to maintain employees, or at least to not lay them off, for the time being, and allow them to have access to money to pay rent, utilities, and other debts that they might have.

BRIAN SOZZI: Greg, we had Treasury Secretary Steven Mnuchin suggest yesterday, in an interview, that economic data, over the next couple weeks, is pretty much useless. I get where he's coming from, but what's your message to investors who might look at his message and say, you know what? Maybe what I'm looking at is useless.

GREGORY DACO: Well, I think the data is never useless. I think the data is what it is, and it reflects the state of the economy at a certain point in time. Granted, when we got Q4 GDP yesterday, that doesn't make much sense. And it doesn't really give you much insight as to what's going to happen. It provides a nostalgic feel for when we were growing at 2%. And now we're looking at a GDP contraction in the second quarter that might be of the order of 25% on an annualized basis, with GDP falling by same order of magnitude.

So, yes, the old data may not be as relevant. But we're starting to get some consumer confidence data, some business confidence data. And very soon, we'll get some unemployment numbers, which will highlight the true extent of the damage that's being done by this virus. So data is very important at this stage.

BRIAN SOZZI: No, I share your sentiment, Greg. Greg Daco, Chief US Economist at Oxford Economics. Always good to talk with you. Appreciate you taking a few minutes.

GREGORY DACO: Always a pleasure.