May 4, 2020
Executive Summary: The COVID-19 lockdowns have pushed up initial jobless claims over the past six weeks to roughly 30 million nationwide. Only about two-thirds have begun to receive unemployment benefits as bottlenecks persist in the state-level claims process. The silver lining is that initial claims peaked three or four weeks ago as the median state-level claims have dropped 54.1% since the peak. Furthermore, more than half of the US population will be open or partially open by mid-May.

Initial Jobless Claims Peaked Three or Four Weeks Ago

Initial weekly jobless claims were 3.84 million for the week of April 25 on a seasonally-adjusted basis. The seasonal adjustment appears to be significantly overstating the number of claims. While the seasonal adjustment is usually helpful to smooth holidays, etc., the COVID-19 spike in claims is an order of magnitude higher than ever recorded, going back to 1967. In fact,

Initial jobless claims in 43 states peaked more than three weeks ago (April 11).
when we compare the raw data (27.88 million) to the adjusted figures (30.30 million), it appears that the seasonal adjustment is boosting the totals for the past six weeks by more than 2.42 million claims.

Also, the adjusted claims peaked during the week of March 28, while the raw unadjusted data shows the peak was the week ending April 4. Regardless, it appears that initial weekly jobless claims peaked three or four weeks ago.

State-Level Claims Trends

The state-level trend confirms our view that initial weekly jobless claims have peaked with 43 of the 50 states peaking more than three weeks ago (April 11); the remaining seven peaked in the past few weeks. Although eight states had week-over-week increases for the week of April 25, just six rose more than 1,000: Georgia (up 17,815), New York (up 13,728), Washington (62,282), Iowa (up 1,926), and Nevada (up 5,547). However, all of those states peaked and are at least 20% lower, with most down about half, including New York.

More importantly, the number of claims has been halved in most states since its peak; the median state-level initial claims dropped 54.1% since its respective peak. The top 10 states in terms of initial claims, which accounted for roughly 4 million claims at their peak, have since declined 55.4%.

A Bottleneck in Continuing Claims

There is a significant gap of roughly 10 million between the number of initial claims, which counts the number of applications received for new benefits, and continuing claims, which are the number of people receiving unemployment insurance checks, by our estimation based on the unadjusted data. (The gap widens to 12.3 million for the seasonally-adjusted figures.)

Roughly a third of the people that filed for unemployment insurance did not receive benefits as recently as the week ending April 18.
This suggests roughly a third of people that have filed for unemployment insurance did not receive benefits as recently as the week ending April 18.

The most likely cause is a processing backlog. There have been news reports indicating a myriad of problems, including outdated state-level systems, inadequate staffing in some states, and system outages due to the massive volume of claims. Parts of Florida have reportedly reverted back to paper applications, which slows processing, due to the volume of claims.

Another possibility is that applications are denied or under investigation. Claims can be denied for reasons including the person was ineligible, quit voluntarily, or was fired for cause (i.e., misconduct). A claim may be under investigation if the information submitted was incomplete or incorrect, or is a multi-state claim (as a result of working in more than one state). In most states, eligible claimants will get all of the “back” benefits once the investigation is resolved.

Regardless, the bottleneck in claims is delaying benefits for a significant number of people, which will reverberate through the economy in short order. Most Americans do not have enough savings to overcome several consecutive weeks without pay, which leads to falling behind on some or all of their monthly bills and living expenses.

Bottom Line

Our employment outlook remains mixed at this point. There have been roughly 30 million initial jobless claims in the past six weeks. This will translate into a massive wave of monthly job losses and a spike in the unemployment rate when the April jobs report is released on May 8. The consensus expects April job losses to top 20 million and the unemployment rate to surge to 16%.

On the other hand, we are optimistic that the unprecedented size of assistance programs by the federal government, with a large income replacement component for individuals and businesses, and the Federal Reserve should blunt some of the downside and hasten the eventual recovery. Furthermore, a handful of states have already begun the first phase of reopening. While there are hotspots, which will require extended restrictions, much of the country appears to on the right track from a virus containment perspective. By mid-May, more than half of the US population will be open or partially open. Resuming activities in these states even at reduced levels should begin to reverse at least some of the job losses.

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