The number of Americans filing for first-time unemployment benefits last week declined again, but the total number of filers is still alarmingly high at 44.1 million over a 12-week period since the start of the coronavirus outbreak in the U.S. in mid-March.
For the week ended June 4, workers filed another 1.5 million claims, down from nearly 1.9 million the week before. First-time filers have been steadily declining each week since hitting a peak of 6.615 million for the week ended April 4.
And while state and local governments have eased shelter-in-place restrictions as they begin to restart their economies, not all retail jobs will be coming back for furloughed workers. Nonessential retailers temporarily closed all stores in mid-March to curb the spread of the coronavirus outbreak in the U.S.
Some began the reopening process at the end of April, but many stores remain closed. Some retailers, either because of a bankruptcy filing or routine reassessment of their store network, have announced permanent store closures. Bankrupt J. C. Penney is slated to close 242 doors, while Nordstrom is closing 16 full-line stores, even though the individual locations are profitable. And on Wednesday, Inditex said it would shutter up to 1,200 stores globally over a two-year period.
Still, the continuing decline in the number of first-time filers is something to cheer about, economists said.
“Jobless claims fell for the tenth consecutive week. It’s a move in the right direction,” Tim Quinlan, Wells Fargo’s senior economist, said at the bank’s webinar Thursday addressing its mid-year economic outlook. Economist Charlie Dougherty and chief strategist Brendan McKenna joined the conversation, which was moderated by chief economist Jay Bryson.
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Quinlan said the May surprise in which employers created 2.5 million jobs last month would need to continue “for the next eight months to get to where we were pre-COVID-19.” Most of the job creation last week was fueled by businesses such as restaurants and bars reopening and rehiring some of their workers who had been put on furlough. The senior economist doesn’t expect the unemployment rate, now at 13.3 percent, to get down to 6 percent until 2022.
As for U.S. economic growth, it will be what many have called a gradual recovery. In fact, the Federal Reserve has indicated the same, keeping the benchmark short-term interest rates at near zero through 2022. Fed chairman Jerome Powell on Wednesday laid out a grim recovery forecast. He expects the unemployment rate will remain stubbornly high for years, as the number of newly out-of-work people whose jobs have disappeared forever runs “well into the millions” in the aftermath of the coronavirus pandemic.
“There are 7.4 million cases of the coronavirus, globally. The U.S. has more than 4 times the number of cases, which is why there was the shutdown. COVID is still spreading globally, but it seems to be under control in the U.S.,” Quinlan said.
The good news is that the U.S. has flattened the curve regarding the level of infections and deaths from the coronavirus. “That flattening is critical to our forecast. We expect [U.S.] GDP growth in free-fall in the second quarter before turning positive in the third quarter,” Quinlan said. GDP is down about 6 percent, and he projects that at the end of next year, the overall size of the economy will be 2.5 times smaller than where it was pre-COVID-19. The projection is for a full recovery in 2022.
“The virus set us back by a few years. We are now officially in a recession,” he said.
The 100-year-old economic watchdog nonprofit National Bureau of Economic Research agreed Monday that the U.S. is officially in a recession, ending a record 120-month period of expansion in February.
Quinlan also noted the recent spike in shopping as the result of pent-up demand and consumers eager to spend their stimulus checks, but doesn’t see that continuing. “I don’t expect consumer spending coming back to pre-COVID levels as the labor market saw a huge disruption,” he added.
Dougherty, who addressed the regional and sector outlook, expects commercial real estate vacancy rates to spike upwards as the coronavirus will accelerate vacancy trends that were already in place. The retail vacancy rate hit 4.7 percent in the first quarter, and the recent spate of retail bankruptcies won’t help. “Retail is right-sizing itself and it is continuing to evolve,” Dougherty said, noting that he is optimistic about the retail sector going forward after the right-sizing is complete.
And McKenna said even if there’s a second wave of coronavirus infections come fall, there’s a chance the economic damage won’t be as severe the next time around because government and health care agencies will be more prepared, with the current crisis serving as a blueprint.
While McKenna estimates that the global recovery begins in the second half of 2020 for mature economies, he’s not as positive for the emerging markets. “Many countries were already fragile pre-virus, and most central backs and governments lacked the policy space to respond to an unforeseen shock like COVID-19. The recovery in emerging markets should be [somewhat] uneven,” he said.