There are fears the United States might have fallen into its deepest recession as unemployment insurance claims spike, with tourism, retail and hospitality all being hurt by the COVID-19 outbreak.
The official figures showed that insurance claims for unemployment have spiked to 6.6 million, an increase of 3.3 million for the previous week.
The figures show America’s unemployment will spike from 3.5 per cent to the low teens, as the country comes to grip with the fallout from the COVID-19 pandemic.
BetaShares’ chief economist David Bassanese said world markets were unlikely to see the V-shaped recovery that many investors were hoping for, with the US facing depression-like conditions.
“It is not just a US recession we need to worry about. We’re talking about depression conditions at least for a month or so around the whole world. Emerging markets are likely to be most negatively affected, which markets have not even had time to digest.
“The US earnings outlook remains the ‘dirty little secret’ of the market at the moment, with neither analysts or companies prepared to offer much guidance.
“But we should expect at least a 50 per cent cut in the current level of earnings for 2020, and step level downgrade to the future path of earnings for the next few years.”
Robert Steven Kaplan, president and CEO of the Federal Reserve Bank of Dallas, told CNBC that even if the United States practices social distancing, the bounce back in the economy will take time.
“We will likely end the year though, we believe, below 10 per cent unemployment. Probably closer to 8 per cent. But then it is going to take a while to work it off. And so, the consumer is going to be much more cautious for obvious reasons.
“And so, there’s just an open question about what the strength of the consumer is going to be once we get past this virus, and we get into the fourth quarter and we get into 2021. And I think that’s a big challenge and question mark for the economy.”
The United States’ 160-million strong labour market has been resilient over the last three years falling to a low of 3.5 per cent, despite market turmoil from the trade wars.
However, the weak job numbers are likely to be a side effect of a recession, which will not only impact the United States, but also likely to happen globally.
“The recession appears to be deeper and more prolonged than we were led to believe just 14 days ago when we last updated our forecasts, not just in the US but globally as well,” Bank of America’s senior US economist, Michelle Meyer, told the media.
“We now believe that there will be three consecutive quarters of GDP contraction, with the US economy shrinking 7 per cent in the first quarter, 30 per cent in the second quarter and 1 per cent in the third quarter.
“We expect this to be followed by a pop in growth in the fourth quarter.”
In the week ending 28 March 2020, the advance figure for seasonally adjusted initial claims was 6,648,000, an increase of 3,341,000 from the previous week’s revised level.
This marks the highest level of seasonally adjusted initial claims in the history of the seasonally adjusted series.
The previous week’s level was revised up by 24,000 from 3,283,000 to 3,307,000. The four-week moving average was 2,612,000, an increase of 1,607,750 from the previous week’s revised average. The previous week’s average was revised up by 6,000 from 998,250 to 1,004,250.
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