What will happen on Thursday? Some are predicting Armageddon.
If you want a weekly pulse on the heartbeat of the US economy, look no further than the unemployment claims number released every Thursday at 8:30 am by the U.S. Department of Labor. Last week, unemployment claims jumped 33%, and while that might have been a shock, next week, economists are expecting a full-blown heart attack. This will likely tank the market further and remove all doubts that the US economy is spiraling into panic due to Covid-19.
With demand for flights and hotels evaporating and large states such as New York and California ordering people to stay at home, companies have to either fire or furlough workers to cut costs and conserve cash. Jobless claims are rising to unprecedented levels, and we will find out by how much on Thursday.
For reference, weekly unemployment claims have averaged around 220,000 for the last 12 months, but this last week’s claims jumped 33% to 281,000. This relatively small pop is only the tip of the iceberg.
Ian Shepherdson, an economist at Pantheon Macroeconomics, predicted on CNBC that the unemployment number released Thursday could jump 1000% to 2 million. Investment Bank Goldman Sachs is predicting a number as high as 2.25 million. Goldman calls it “the largest increase in initial jobless claims and the highest level on record.”
Ultimately there are roughly 16 million people who work in the hospitality and leisure industry in the US, which is about 10% of the total 155 million US workforce. On Thursday, we will find out how many of them have immediately been let go. Then over the next few months, the numbers may grow as workers who were initially furloughed become officially fired and are added to the count.
Thursday will be a big day for the market. If the 2 million+ unemployment claims number is a surprise to most investors, I will expect a nasty sell-off in the markets as investors continue their dash for cash.
Disclosure: The author is short $IWM (iShares Russell 2000 Index). This article is for informational purposes only, and while the author makes every effort to present accurate and reliable information, Foreshadow, LLC does not guarantee the accuracy, completeness, efficiency, timeliness, or correct sequencing of such information. Reliance on such information should only be undertaken after an independent review of its accuracy, completeness, efficiency, and timeliness. This article is not intended to serve as a recommendation to buy or sell any security. The author is not a registered investment advisor.