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An additional 4.27 million Americans filed for unemployment benefits in the week ended April 18, in line with the expectation of 4.5 million. This follows 5.23 million the week before, revised down from 5.24 million. The unemployment rate is now likely to approach 20% in the next two months.

Key Takeaways

• 6 million Americans have filed unemployment insurance claims in the last five weeks, with more likely unreported.
• Continuing claims hit an all-time high of 15.98 million in the week ended April 11, slightly below expectations.
• Claims are expected to steadily decline in the coming months, although millions more will lose their jobs.

The coronavirus pandemic has collapsed the US labor market, an area of the US economy that was driving other vital aspects like consumer spending, which accounts for two thirds of all economic activity in the US. Initial jobless claims have likely peaked and will tick steadily downward from here, but millions more layoffs are expected in the near term.

California saw the highest number of initial jobless claims with 533,000 out of work last week, down from 655,000 the week before. Florida saw 505,000 claims, followed by Texas with 280,000 and Georgia with 244,000.

This chart shows initial unemployment insurance claims over the last 50+ years, this time with recession-shading. The jobless claims of the last five weeks are more than five times the worst five-week stretch of the Great Recession. 15/ pic.twitter.com/9MOeMF8t1e

— Heidi Shierholz (@hshierholz) April 23, 2020

Some states implemented the “shelter-in-place” orders mandating that citizens remain in their homes later than others, and the states that took longer to do so have seen comparatively higher job losses. Many claims seen recently were backlogged as local governments struggle to process the tens of millions of layoffs flooding in.

Expert Outlook

Nomura economist Lewis Alexander stated “While the labor market remains under severe strain, states that imposed lockdowns relatively early are seeing claims activity improve somewhat,” adding that “with roughly 20mn initial jobless claims filed over the past four weeks, we continue to expect a decline of 20mn or more in April nonfarm payroll employment and the unemployment rate to approach 20% over the next two months.”

Morgan Stanley economist Jan Kozak stated “Claims have moved passed the peak more visibly now, but the cumulative number is still rising significantly,” with the current backlog still adding to each week of new claims.

Right so... United States Initial Jobless Claims graph from https://t.co/7Ykr72kDP4

The #CoronaCrisis broke the chart, makes the financial crisis look like an amateur. pic.twitter.com/mGQW85zXvx

— ¥µƦī (@GosuYuri) April 23, 2020

He further stated that “not every initial unemployment claim will translate into unemployment insurance benefits. In a nutshell, taking into account BLS methodology as well as transition rates observed in historical relationships, we expect that fewer lost jobs will be counted in the official unemployment rate. For instance, in the headline unemployment rate, a lower share of job losses are registered as unemployed, which offsets the number of job losses.”

Finally, Andrew Gratham of CIBC economics pointed out that 17% of the previously employed population have applied for unemployment benefits, commenting on the “dramatic and historic weakening of the economy.”

Market Reaction

Gold prices have risen following the in-line news of massive layoffs in the US economy for the fifth week in a row. Spot gold last traded at $1,733.00/oz, up 1.24% with a high of $1,733.00/oz and a low of $1,708.92/oz. With no reliable estimation as to when the lockdown might be lifted in various states, the economy is still in a period of extreme uncertainty. The risk-off environment is bullish for gold, as is the recovery from the shocking mid-week collapse of crude oil prices.