Chief economist update: Honey, COVID-19 got me sacked

The numbers are in, and the US Economic Policy Institute's (EPI) estimate of unemployment claims, if not right on the dot, was way inside the ballpark.

EPI estimated 3.4 million workers filed for unemployment in the week ended March 21, that it says "dwarf every other week in history, as can be seen by comparing the projection against the trend in initial claims back to 1967".

This is around a million more than the US Labor Department's official estimate of 3.3 million - released overnight - but still "dwarf every other week in history ... back to 1967".

Below is the updated chart from Factset:

In as much as initial jobless claims provide a leading indicator of the unemployment rate, Federal Reserve Bank of St. Louis President James Bullard's prediction that the US unemployment rate could hit 30% in the second quarter appears to be on target - eyeballing the charted correlation between initial jobless claims and the unemployment rate shows that even Bullard's grim forecast appears to be an underestimation.

In spite of these, Wall Street rallied overnight -- Dow +6.38%, S&P 500 +6.24%, Nasdaq +5.60%, Russell 2000 +6.30%.

Perhaps it's because claims came in a million less than expected; perhaps, it's because of the Senate's approval of the US$2 trillion stimulus package; perhaps it's the Fed's unlimited QE, new facilities to support corporate credit and commitment to get credit flowing; perhaps it's fund managers and investment companies rebalancing their exposure to equities -- the recent equity market correction placed them into overweight positions - or investors covering short positions. Perhaps, perhaps, perhaps.

The overriding question is, are these measures enough to sustain market confidence, and more importantly, limit the contraction in the economy.

Not so, according to the latest report from Factset: "Multiple reports have discussed concerns that the ~$2T economic stimulus package will not be enough. The NY Times said the deal was not economic stimulus at all, but rather a series of survival payments that will last only a few months. WSJ touched on a similar dynamic, noting that until the spread of the coronavirus is contained, the economic damage will persist."

How quickly the coronavirus is murdered is the key. As US Fed chair Jerome Powell declared: "If we get the virus spread under control fairly quickly, then economic activity can resume ... The virus is going to dictate the timetable here."

And if I may add, the coronavirus will dictate the depth of the recession, the height of the unemployment rate and the amount of additional dollars spent to bribe it to go away.

Read our full COVID-19 news coverage and analysis here.

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