The surge in unemployment isn’t over. New jobless claims data released today by the US Department of Labor showed that total claims surged again in the week ending May 9, exceeding 2 million for the eighth week in a row.
Last week there were 2.6 million new claims for unemployment insurance. That was down from 2.8 million the previous week, and down from the peak of 6.2 million on the week of April 4.
Since claims began to surge on the week of March 21, 33.3 million new claims have been filed.
Last week the Department of Labor released monthly data estimating that 20 million jobs have been lost in recent months. That means nearly all the job gains of the last twenty years are gone.
This drove the unemployment rate above 14 percent, although Chicago Fed economists suggest that it may really be above 25 percent.
It’s unclear how many of these workers will make an effort to return to the workforce. Many potential workers will simply leave the workforce and not return for many years as they wait for the economy to recover. Many older workers may never return.
In April, labor force participation in the 25–54 age group plummeted to a 37-year low, dropping to 79 percent. That’s the lowest since 1983. (Keep in mind that we’re looking only at workers in the 25–54 age range. We’re avoiding the issue of students staying in school longer and Baby Boomers retiring.)
The overall effect, of this, of course, is that workers and entrepreneurs are producing far less than they were a few months ago. This presents a serious inflation risk, since the money supply has continued to increase at breakneck speed. Consumer price inflation is mitigated by gains in productivity. But that’s certainly not where we are right now, and we have many more dollars competing for a shrinking pool of available goods and services.
Not surprisingly, grocery prices shot up last month at the fastest clip in forty-five years. Whether this lasts, however, depends in part on how well markets adjust to the new demand patterns that have emerged as a result of the COVID-19 panic. Food purchases have shifted dramatically away from restaurants and toward grocery stores. If markets are allowed the freedom to adjust as needed, price inflation will be mitigated in this regard, although it’s unclear to what extent, and depends also on how many more rounds of helicopter money (i.e., the $1,200 per person stimulus checks) are implemented.
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