Illustration: Eniola Odetunde/Axios
Unemployment is likely to hit levels not seen since the Great Depression and remain elevated, economists warn, weakening the U.S. economy and making a V-shaped recovery increasingly doubtful.
Why it matters: That will be true even if states allow businesses to reopen sooner than expected, as surveys show most Americans aren't ready to go back to their normal routines.
The big picture: Many are looking to China's return from its coronavirus outbreak as a model, but the U.S economy is "a different ball of wax," S&P Global chief U.S. economist Beth Ann Bovino tells Axios.
- The U.S. is a democracy and far more reliant on the services sector, which provides 80% of American jobs.
- "China was locked down for a month and it was specific to one region, whereas [in] the U.S., we’re approaching two months and 90% of the population is under lockdown," she adds.
- "That’s a big difference in terms of the impact on the labor market."
Driving the news: Analysts expect today's initial jobless claims report to show another 4.5 million Americans applied for unemployment benefits last week, taking the total number of filings to more than 26 million in just the past five weeks.
Between the lines: While unprecedented government spending has helped boost sentiment on both Wall Street and Main Street, it is unlikely to accomplish its goal of keeping most workers tied to their employers, Bovino says.
By the numbers: The Small Business Administration recorded 30.2 million small businesses in the U.S. as of 2018. So, even with the expected Paycheck Protection Program funding of $322 billion being added to the initial $350 billion tranche, that would equal only around $22,250 per firm.
- "That might help some mom and pop stores that only have one part-time worker, but it’s not going to help those companies that have many more," Bovino says.
- "I just don’t see the incentive for businesses to hold onto workers. And that’s why we’re seeing all these businesses shed jobs."
To wit, of the roughly 60 million Americans employed by a small businesses, only one-third work at companies with 20 employees or less, SBA data show.
- And PPP loans are only forgiven if 75% of funds are used to cover employee salaries.
- That leaves little for rent, utilities, supplies and other costs incurred by business owners, who are seeing significantly decreased or zero revenue.
Where it stands: Ratings agency Fitch said Wednesday it expects global GDP to decline by 3.9% this year, "twice as large as the decline" it predicted just weeks ago and "twice as severe as the 2009 recession."
- Bovino and S&P Global senior U.S. economist Satyam Panday expect U.S. GDP will shrink by 5.2% this year — about four times their March forecast of a 1.3% contraction — and unemployment will hit 19%.
- "The current recession has likely reduced economic activity by 11.8% peak to trough, which is roughly three times the decline seen during the Great Recession in one-third of the time," they wrote in a recent note to clients.