JPM Economist on record jobless claims: this is 'just the beginning'

JP Morgan Senior Economist Jesse Edgerton joins Seana Smith to break down his expectations for the U.S. economy after weekly jobless claims jump to a record 3.28 million.

Video Transcript

SEANA SMITH: Well, of course the big focus, though, today is on the economic data point. We had 3.3 million Americans filing for unemployment in the past week. That's more than four times what the previous record was.

So for more on this, I want to bring in Jesse Edgerton, Senior Economist at JPMorgan. And Jesse, when we take a look at that number, that 3.3 million number for US jobless claims last week, I mean, what are your thoughts on this, and do you think it actually underestimates the full damage that we could see from the coronavirus outbreak?

JESSE EDGERTON: Well, it is obviously a very large number, the largest we've ever seen in a single week before. We did have some sense that this was coming though, right? We know that a big chunk of the economy, something like 50% of GDP is now under stay-at-home orders, and there's just kind of a relatively limited number of people that can work from home. You know, we're talking about something like 30% of employment in the affected sectors. So we know that we're going to see millions of jobs lost here. And to be honest, that 3 million today is probably just the beginning.

SEANA SMITH: Well, if that is just the beginning, what could we see next week? Because some of the estimates that have been out there have been saying that we could see another million or 2 million filed within, I guess, this current week that's happening right now.

JESSE EDGERTON: Yeah, that's definitely a possibility. I saw the governor of California quoted as saying that they had gotten a million applications in the last two weeks, but California only reported a couple hundred thousand in the number we just got this morning. So that suggests that there are hundreds of thousands of more already that have come into California, and we're probably going to continue seeing numbers like that from other states as well, right? Some people kind of got laid off and got right on to filing for benefits, but I suspect that we will see additional millions of people filing in the coming weeks here.

SEANA SMITH: And, Jesse, it was interesting. We had Treasury Secretary Steven Mnuchin. He was talking, and he was saying that you shouldn't read too far into these numbers because he was saying that employers will just hire many of these workers back once the coronavirus outbreak, once it passes. Do you agree with that? Do you think that is the case?

JESSE EDGERTON: Well, I mean, I think we hope it will be the case, at least to a greater extent than normal. You know, even if you have to formally lay somebody off so they can collect unemployment benefits-- you know, yeah, sure, you can keep in touch for a couple of months and, you know, hopefully hire them back. But, you know, even if you hire back, say, 80% of them or some pretty high fraction like that, that's still going to leave a lot of people who are unemployed after the virus is over, if it does get to that point. So I think there still will be lasting damage here even if we do get a rapid bounce back for some of these people.

SEANA SMITH: Jesse, it was interesting. I was going through the note that you put out this morning, and you were just updating your expectations in terms of what you're expecting to see in regards to GDP for the first quarter and the second quarter. You're now expecting a contraction of about 10% in the first quarter, 25% contraction in the second quarter. Just walk us through just exactly how you came up with those numbers and if, after a figure like we saw this morning, if it could actually get even worse?

JESSE EDGERTON: Yeah, so again, that comes from thinking about primarily these shutdowns or stay-at-home orders, right? So, you know, something like states accounting for 50% of GDP have some form of a stay-at-home order at this point. If you try to guess what percent of activity in those states can't be done under a stay-at-home order-- so, you know, things like bars and restaurants, you know, travel, tourism. And then you've also got to be thinking just about kind of nonessential retail and manufacturing, construction, things like that. So if you just add up how much activity is out there that is going to be shut down here, that's how you get to these big numbers for minus 10% in the first quarter, minus 25% in the second quarter at an annual rate.

DAN HOWLEY: I just wanted to ask a quick question. Dan Howley here. We talked about, you know, China and mentioned the people that are losing their jobs and when we could see those people come back. What about people that don't get their jobs back, businesses that had to close permanently-- restaurants, smaller independent stores? When do we eventually get the economy back on track to what it was prior to the outbreak?

JESSE EDGERTON: I mean, I got to say our forecast is for a pretty bleak answer to that question, right? So we probably will see, to some extent, a faster bounce back than normal if people keep in touch with the employees they had to let go and, you know, get some rebound in those directly affected sectors. But, you know, we're still penciling in a lasting hit to the level of output and the level of unemployment.

You know, thinking about after the financial crisis, it took something like 10 years before you got the unemployment rate back to where it was before the crisis. So, you know, we do think the economy is taking a hit that's going to look something like that. And even though policymakers are obviously doing a lot and acting very fast, I still think we're going to be in for an extended period of high unemployment here.

SEANA SMITH: Yeah, Jesse, I want to ask you about policymakers, their measures that they have taken so far. We heard Fed chairman Jerome Powell this morning. He was on NBC. He was basically saying that the Fed is not done. There's more that they could do. In regards to what the Fed could do going forward that they haven't done yet, what do you see them doing as their next move?

JESSE EDGERTON: Well, I mean, they've done an amazing amount, right? They've announced open-ended quantitative easing, which they've been implementing at a very rapid pace, buying tens of billions of assets every day. You know, that used to be more like the monthly pace of purchases in past rounds of quantitative easing.

You know, they've already really been pushing the envelope here in terms of what they can do with these lending facilities. You know, they're doing corporate bonds for the first time ever, right? That's something that they never did during the financial crisis.

One thing they've talked about that they say they're working on is some kind of small-business lending facility where they would put together some kind of an entity that would buy loans from banks, perhaps loans to small businesses with the Fed-- with the Treasury providing some credit support and the Fed putting some lending into that, right? So that would be unprecedented here. That's something they've talked about already.

You know, we always think it's hard to go much further than they have without kind of running into the legal limits on what they can do, but that is one thing that they're clearly considering here already.

SEANA SMITH: All right, Jesse Edgerton, senior economist at JPMorgan, thanks so much for calling in this afternoon.