The Great US Jobs Haemorrhage

February 25, 2021

The Great US Jobs Haemorrhage

An acceptable level of unemployment means that the government economist to whom it is acceptable still has a job the labor market is in bad shape

The biggest indictment against the massive amounts of fiscal and monetary support already poured into the US economy is the dismal state of its labor market. The Fed and Treasury have, together, already injected trillions of dollars into the American economy, albeit to different parts of it, but the labor market does not seem to have gotten the memo.

Here’s how massive an impact Covid lockdowns had on the US economy:

Initial jobless claims in the USA spiked massively higher because of COVID in March 2020

Initial jobless claims in the USA spiked massively higher because of COVID in March 2020, which is the largest ever claim count in US history

The chart on the left shows the massive initial spike from ~200k claims per week pre Covid, to more than 6 million as lockdowns first rolled across the States. The spike is put in historical context on the right, which shows the number of Covid claims to be multiples of what was posted in 2001-2002 and 2008-2009. The Dot Com bust had claims peaking at ~400k, while the Great Financial Crisis had claims peaking at ~600k; nowhere near 2020’s 6 million peak.

What is more worrying however, is not just the size of the initial spike of claims, but for how long initial claims have continued to come in way above historical norms. Here’s a chart, with the Covid spike removed, for context:

Initial Jobless Claims in the USA remain extremely elevated even a year after the initial Covid lockdown spike

Initial jobless claims remain very elevated compared to what they were in 2018 and 2019. Back in what now feels like the distant past of 2, 3 years ago, initial claims averaged ~250k. Post Covid, with spike removed*, claims are coming in at ~800k!

That’s about 800 thousand initial jobless claims made per week, every week for what has been almost a full year now. That’s 3 times higher than what it was 2 years ago, and with trillions in stimulus money having already been added to the economy. The labor market is hurting very, very badly.

Whatever it is the authorities think that they are achieving with their policies, it isn’t working, at least from the perspective of the labor market. We already know that QE does not work, and that fiscal policy cannot lift the economy on its own. Perhaps a policy rethink is in order?

*Covid spike data removed was from March to June.