Jobless claims trending lower as markets eye employment report

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Initial jobless claims fell to a seasonally adjusted 3.169 million in the week ended May 2, from the previous week’s upwardly revised level of 3.846 million, originally reported as 3.839 million, the Labor Department said Thursday.

Economists polled by IFR Markets expected 3 million claims in the week.

The four-week moving average fell to 4.173 million from the previous week's revised 5.033 million, originally reported as 5.035 million.

The insured unemployment rate rose to a record 15.5% for the week ending April 25 from 12.4% a week earlier.

The largest increases in initial claims for the week ending April 25 were in Washington (56,030), Georgia (19,562), New York (14,229), Oregon (12,091), and Alabama (8,534), while the largest decreases were in California (203,017), Florida (73,567), Connecticut (69,767), New Jersey (68,173), and Pennsylvania (66,698).

But the jobless claims figures were just the preliminary event, with April's employment report Friday expected to show large declines in payrolls and a huge jump in unemployment.

“We expect the Bureau of Labor Statistics to report that U.S. nonfarm payrolls declined by 21 million in April and that the unemployment rate increased to 16.2% from 4.4% in its official monthly employment report,” said Roiana Reid, U.S. economist at Berenberg Capital Markets. “These would be the biggest monthly deteriorations in history.”

The 23 million jobs created between February 2010 and February 2020 were essentially lost in a single month, she noted.

“The previous largest monthly decline in U.S. nonfarm payrolls (monthly data started in 1939) was 2 million, which occurred in September 1945 at the end of World War II,” Reid said. “During the Great Recession of 2008-2009, nonfarm payrolls fell by a total of 8.7 million and the monthly change in the unemployment rate will be the largest on record, but it is expected to remain below the Great Depression peak of 26%.”

Meanwhile, economists at S&P Global Ratings believe April's number could be far worse than stated, since some laid off workers may have been unable to file claims as the website was overloaded and undocumented workers would not apply for benefits.

“We expect to see the unemployment rate spike to an astonishing 18% in April from 4.4% in March,” the press release from S&P said. “This will be a record in many ways. It will be the largest number as well as the biggest single monthly jump since 1948. While not (yet) a record high (the Great Depression was 24.9% in 1933), we suspect that it will beyond a doubt top the Great Depression in terms of its speedy ascent.”

Payden & Rygel Chief Economist Jeffrey Cleveland highlighted the uncertainty around such figures. “If workers leave the labor force (say, into retirement or because they have not looked for work in recent weeks), the unemployment rate might not rise as much as expected,” he said. “That won’t necessarily be a good sign though, so we will watch labor force participation, the 25-54 year old ‘employment to population’ ratio and the share of unemployed workers on ‘temporary layoff’ for clues to what’s really going on in the economy.”

The upside, Cleveland said, is past major downturns saw permanent job losses, which may not be the case now. “If the recent rise in unemployment is temporary, it’s possible the economy will rebound more quickly.”

Productivity
Nonfarm productivity fell 2.5% in the first quarter of 2020, after a 1.2% gain a quarter earlier, the Labor Department reported on Thursday.

Year-over-year, productivity grew 0.3%, as output rose 0.1% and a 0.2% hours worked slipped 0.2%.

Unit labor costs rose 4.8% in the first quarter, with hourly compensation up 2.2% and productivity off 2.5%. Unit labor costs were up 0.9% in the fourth quarter and gained 1.5% year-over-year.

Economists expected a 5.5% decline in productivity and a 4.0% rise in labor costs.

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