3.6 million more applied for unemployment last week
The U.S. economy: The good, the bad, and the ugly
San José, CA – On Thursday, May 21, the U.S. Department of Labor reported that 2.4 million more people have applied for state unemployment insurance, or UI, in the week ending May 16. In addition, about 1.2 million people applied for the Federal Pandemic Unemployment Assistance, or PUA, set up by the recent CARES act for the self-employed. This increase of 3.6 million applications for unemployment benefits means that a total of more than 47 million people have lost their livelihood in the last eight weeks.
Where is the good news? Well for the second week in a row, new claims for state unemployment benefits dropped by 250,000. While news claims for the PUA did increase, much of it was because more states were processing these claims. Other economic reports showed that the rate of economic decline slowed down in May as compared to April. These included the Philadelphia Federal Reserve survey of manufacturing and the IHS Markit Purchasing Managers Index for service and manufacturing industries.
The bad news, of course, is that a slower decline means that the economy is still sinking. The single most important measure, the number of jobs lost, will increase by another 16 million over the next two months at the current rate. This would be equivalent to a stunning 40% unemployment rate, worse than even the worst of Great Depression. A Stanford economics professor also estimated that more than 40% of the recent layoffs would become permanent, meaning double digit unemployment will continue even after the economy starts to grow again.
Credit problems continue to build, with 3% of all credit cards in financial hardship deferral, 100 times as many as a year ago. 3.5% of all auto loans are in the same shape, up sevenfold since a year ago. Credit problems are also building at major companies. Hertz, the world’s second largest rental car company, is in negotiation with lenders over its debt. Some auto industry analysts give a 50% chance that Hertz will enter bankruptcy and end up selling all of its cars and liquidate.
Another sign of the spreading economic crisis was seen in the housing market. Even though housing construction was largely exempted from state and local state-at-home orders, new housing construction fell 30% from March to April. There were disruptions in the materials need to build homes and worries about the demand for new homes. Sales of existing homes also fell sharply, down almost 18% in April from March.
A new Census Bureau weekly “Household Pulse Survey” showed the almost half (47%) of households had an adult who lost their livelihood in the crisis as of May 5. About 10% were short of food, and almost a third (32%) could not get the food that they needed. Almost 11% of households reported problems paying for their rent or mortgage.
And the ugly is the growing opposition among Republicans to extending the enhanced unemployment benefits beyond the July 31 deadline in the CARES act. The Republicans want to force workers back to unsafe jobs through a combination of cutting unemployment benefits and giving companies immunity from lawsuits. More and more, the White House and Republican-led Senate are bordering on delusional. While President Hoover oversaw the descent into the Great Depression with his view that “prosperity is just around the corner,” President Trump said this week that the current crisis was a “transition to greatness.”