‘Sudden black hole’: The US economy is cratering at astonishing speed

Another 6.6 million people filed for unemployment benefits last week as the coronavirus outbreak continued its devastating march through the US economy, the Labor Department reported.

With astonishing swiftness, the pandemic has shut down both long-standing and new businesses, leaving veteran workers and recent hires in nearly every type of industry without a pay cheque. In just three weeks, more than 16 million US workers have lost their jobs — more losses than the most recent recession produced over two years.

The US economy has been paralysed by the coronavirus.Credit:AP

It's as if "the economy as a whole has fallen into some sudden black hole," said Kathy Bostjancic, chief US financial economist at Oxford Economics. Many Wall Street analysts concede that at this point, forecasts are not much more than guesses: The purposeful and sudden halt in economic activity has no precedent, and no one knows when the restrictions on movement and commerce will be lifted.

Given the current information, though, several economists expect that by the end of the month more than 20 million people will have been thrown out of work, pushing the unemployment rate toward 15 per cent. In February, it was 3.5 per cent, a result of 113 straight months of job growth.

The country's gross domestic product, the broadest measure of the goods and services produced, could fall this quarter at an annual rate of as much as 35 per cent from the preceding three months.

It is clear that this quarter will be "really terrible," Bostjancic said. "We just don't know the degree of terribleness."

The weekly tally of people filing claims is one of the best measures of the virus' effect on the labour force, but it does not capture the full extent of the joblessness.

Despite feverish efforts in many states to expand staffing and upgrade technological capacity, unemployment offices have been vastly overpowered by demand. Applicants in several of the hardest-hit places, like New York and California, say they've made dozens of attempts — even hundreds — to get through online or by telephone. Some have still not succeeded.

In addition, directives to stay at home took effect only last week in many states. Florida and Texas, which together account for 15 per cent of the nation's payrolls, decided midweek to close nonessential businesses. As a result, the spike in claims in those states may not show up in the Labor Department's report until next week.

The purposeful and sudden halt in economic activity has no precedent, and no one knows when the restrictions on movement and commerce will be lifted

Kendall Clark, an information technology recruiter said she had not managed to file despite more than 1200 attempts, some at 1am.

"For now, I don't really know what else to do," said Clark, who lives with her husband and two sons.

"I'm stuck, I'm frustrated, and I don't really know where to go from here.

"The plan is that we don't pay some bills but pay the mortgage so we don't lose the house," she said.

Although each state sets the level and duration of its unemployment benefits, the federal $US2 trillion ($3.2 trillion) emergency relief act passed two weeks ago expanded the program, widening eligibility and extending the period for compensation.

Virtually no industry has been immune to job cuts.Credit:Bloomberg

Those payments will be crucial in helping families survive the crisis, said Robert G. Valletta, senior vice president and associate director of research at the Federal Reserve Bank of San Francisco.

"It's exactly the kind of bridge that we need to make sure people are able to maintain some level of household stability and come out of this without complete devastation," he said.

Getting money immediately into the hands of people who need it not only helps households buy groceries and pay rent during an acute crisis but also aids in the economy's recovery.

"That helps to keep establishments open and running," said Cathy Barrera, founding economist of the Prysm Group, and that could help prevent a short, sharp shock from turning into a prolonged slump after the epidemic ebbs.

The government's relief package — which includes low-interest loans and grants for businesses, ready cash for individuals and expanded unemployment insurance — was enacted with that goal in mind.

Individuals should soon start receiving $US1200 emergency assistance checks. But Barrera worries that the expanded unemployment benefits won't come through rapidly enough.

"I am concerned that the way this relief has been channelled through the existing unemployment insurance system — which can be difficult to access in an expedient way — can be causing us some problems," she said.

Several states, including Connecticut, have warned that cheques could be delayed up to five weeks because of the deluge. Others, like Florida, start benefits only when a claim is filed, regardless of the difficulties that applicants have had.

The new Pandemic Unemployment Assistance, for example, allows workers who don't normally qualify — like independent contractors, part-timers and recent hires — to receive weekly benefits.

But like many others, Kandy Thomas, a self-employed dog trainer and animal caregiver in Salt Lake City, found barriers to collecting. The state website she checked said that "these benefits are not yet available as we are awaiting further guidance from the US Department of Labor on the process for implementing these programs."

"There's nothing for someone like me," Thomas said. "As soon as you say you're self-employed, you're done."

Normally, most states offer roughly half of a worker's previous wage for up to 26 weeks of unemployment, but the benefits can vary widely among states.

At the end of 2019, the average weekly benefit in Mississippi was $US215, and just 9 per cent of unemployed workers there were eligible to receive any payments, according to a Brookings Institution analysis. In Massachusetts, the average weekly benefit was $US550, and 57 per cent of jobless workers qualified.

In Florida and North Carolina, benefits last for only 12 weeks.

Under the new federal law, jobless workers will get an additional $US600 each week through July. They will also be able to receive benefits for an additional 13 weeks.

Workers in the country illegally and those newly entering the labor force remain ineligible.

The New York Times

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