Denial, economics, and COVID-19

Dan Guild on how an avalanche of new unemployment claims will not only be a human tragedy, but also strain hospital finances and state budgets. -promoted by Laura Belin

We are in the midst of a health crisis, first and foremost. That should not be forgotten, and I will highlight one aspect of that crisis a little later in the piece.

But we are also in the midst of an economic crisis, and despite what you have may read about the stock market, that crisis is being underestimated. Every week the U.S. Bureau of Labor Statistics (BLS) reports how many people filed new claims for unemployment insurance. Those numbers are the closest thing to real-time data that we have about the U.S. labor market.

The Trump Administration is actively seeking to suppress this report. The weekly report is based on data states send to the BLS. On March 18, the Trump Administration asked states not to send their data to the BLS and not to make “numeric values” of new claims public, for fear that the number would create panic. How many states are complying is not yet clear; Laura Belin noted here that Iowa Workforce Development declined on March 20 to release totals for new unemployment claims.

Wall Street firms have issued their own estimates.  Goldman Sachs estimated that 2.25 million people filed new claims for unemployment insurance last week, more than double the largest on record (685,000 in 1982).

But Goldman Sachs’ estimate is far too low, which suggests that the economic effects of COVID-19 will be worse than expected.

How do I know this? For the last week, I and others have been tracking media reports from individual states as they announce their unemployment claims in this spreadsheet. As of the morning of March 23, we have reports from 29 states.  From those reports (all from reliable media sources) we have identified 1.95 million new claims for unemployment. Critically, most of those reports are for the first three days of last week.

Based on the data we gathered, I have projected how many new unemployment claims were filed last week. The first projection takes the percentage increase of new unemployment claims in the states we have data for and projects the total number of UI claims. But that is almost certainly too low, since many of these states have only reported data for the first three days of last week. 

The second projection uses only those states where we have a full week of data. It predicts that 3.8 million unemployment claims were filed last week, a thirteen-fold increase from the week before. What does that mean for Iowa?

If my projection is accurate, some 34,000 thousand Iowans lost their jobs last week.

It is critical to remember what these raw numbers mean:

  •  Each one represents an individual or family that has lost their livelihood. Because unemployment insurance covers only a portion of their earnings, many people will not be able to pay their rent or mortgage. They may not have enough money to buy food.
  • In a time of a pandemic when access to health care is more critical, many newly unemployed people will have lost their health insurance. It is very unlikely a significant percentage will be able to make their health insurance payments under COBRA.
  • Unemployment benefits can only be paid if the fund has enough to money pay all of the claims. It is unlikely any state will be able to make full unemployment payments indefinitely.
  • When the newly unemployed seek care, they will require resources from hospitals that will not be reimbursed, putting enormous strain on hospital finances.
  • Some of the unemployed will apply for Medicaid, but the approval process takes six to eight weeks in most states.
  • State budgets will be grossly inadequate to handle the human tragedy, and state revenue will contract severely.
  • Wall Street analysts do not yet understand the extent of this crisis. As I noted above, a leading firm on Wall Street is badly underestimating how bad things are going to get.

    UPDATE/Editor’s note from Laura Belin: The U.S. Department of Labor released figures on March 26 showing 41,890 Iowans filed for unemployment last week, “up from 2,489 people the week before. The number of claims was the most in a single week” since officials began tracking those numbers weekly in 1987, Tyler Jett reported for the Des Moines Register.

    These are the reports from individual states. My thanks to Twitter user @beardedcrank for his help. Our spreadsheet is being continually updated here.

    Reports through the morning of March 23:

    State Report through Increase Claims WE 3/21 Claims WE 3/14
    1095.53% 1,953,120 178,281
    Alabama Week 557.36%                  9,347                 1,677
    Arkansas 3/18/2020 649.35%                  8,000                 1,232
    California Week 968.94%              564,000               58,208
    Colorado 3/18/2020 1064.28%                25,000                 2,349
    Connecticut 3/18/2020 1629.80%                56,000                 3,436
    DC Week 1720.17%                17,821                 1,036
    Delaware 3/18/2020 1930.50%                10,000                    518
    Hawaii 3/17/2020 346.42%                  4,500                 1,299
    Illinois 3/18/2020 585.97%                64,000               10,922
    Indiana 3/17/2020 810.91%                22,000                 2,713
    Kansas 3/18/2000 623.90%                11,355                 1,820
    Kentucky 3/18/2020 1265.64%                34,400                 2,718
    Louisiana 3/18/2020 2202.44%                47,000                 2,134
    Maine 3/18/2020 816.99%                  5,000                    612
    Maryland 3/17/2020 190.40%                  5,000                 3,717
    Massachusetts 3/16/2020 425.20%                19,844                 7,408
    Michigan Week 2071.35%              108,000                 5,214
    Minnesota 3/19/2020 1466.28%                95,245                 4,121
    Montana 3/18/2020 780.78%                  5,403                    692
    New Hampshire Week 4761.90%                25,000                    495
    New Jersey 3/16/2020 189.63%                15,000                 7,910
    New Mexico 3/17/2020 400.00%                  3,400                    850
    New York
    North Carolina Week 2417.01%                83,000                 3,434
    North Dakota 3/19/2020 937.50%                  4,800                    512
    Ohio 3/19/2020 1977.99%              139,468                 7,051
    Oklahoma 3/18/2020 372.21%                  6,000                 1,612
    Oregon 3/18/2020                18,500                 4,143
    Pennsylvania Week 2257.63%              350,000               15,503
    Rhode Island 3/18/2020 3526.89%                26,099                    740
    Texas 3/18 378.41%                61,000               16,120
    Virginia 3/18 7692.31%                30,000                 2,883
    Wisconsin Week 1517.45%                78,938                 5,202

    Top image: Stock photo of unemployed man available via Shutterstock.

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