The figure below presents the seasonally adjusted initial claims for unemployment insurance in the U.S. for the first week of 2007 through the week ending March 21, 2020. As is evident, there was an unprecedented increase in claims last week, to 3,283,000. This is an increase of 3 million over the previous week, and this weekly number of initial claims dwarfs any prior week even during the Great Recession of 2007-2009, the period highlighted in the graph below. Initial claims during the Great Recession started out below 400,000 weekly at the beginning of the recession and actually rose to a peak that was just over 659,000 for the week ending March 28, 2009, a few months before the recession ended. It took the first eleven weeks of the Great Recession to match the first two weeks of initial claims in this current episode.
This staggering increase in unemployment cases is caused by the rising number of individuals infected by the Covid-19 virus and the public health measures taken in response to this pandemic. Government-ordered social distancing measures, including shelter-at-home orders of various types, have decimated employment in several industries including restaurants, bars, hotels, airline travel, and various large-venue entertainment options. Leisure and hospitality accounted for just over 10% of U.S. employment in January, prior to the impact of this virus, and businesses in this sector have been devastated.
The emergency relief package that passed the Senate on March 25 and will almost certainly be approved by the House later today addresses some of the concerns that this unprecedented increase in unemployment has caused. Included are provisions to provide cash payments to families (with income limits at the upper end) and to provide loans to small and medium size businesses if they maintain employment levels. A complete analysis of the legislation is a topic for another post, but it is fair to say that the speed with which this emergency relief bill moved through Congress was influenced by predictions of this massive increase in unemployment claims. In the coming weeks we will see how the economy responds to this massive unemployment influx and to the equally massive $2 trillion stimulus bill.