- Dire jobless data this week revealed historic layoff activity through March, and Nobel Prize-winning economist Paul Krugman estimates the unemployment rate could skyrocket to 20% by mid-April.
- The Center for Financial Economics at Johns Hopkins projected Thursday that the 20% level could be reached in six months, calling hopes of a quick return to past lows “comical.”
- Krugman agreed with CFE’s estimate in a Friday tweet, but warned its timeline was “wildly optimistic” and said the unemployment rate could hit 20% in just two weeks.
- “Balance sheet damage will hinder recovery even when the virus subsides,” the economist added.
- Visit Business Insider’s homepage for more stories.
The coronavirus’s sudden stop to economic activity can spike the US unemployment rate to 20% by mid-April, Nobel laureate economist Paul Krugman said in a Friday tweet.
Labor market data released this week shed light on worse-than-expected layoff activity through the end of March. Jobless claims soared by 6.6 million in the week ended March 28, a second-straight record as newly unemployed Americans rush for aid. Friday’s jobs report showed the economy losing 701,000 roles before the strictest lockdown measures were announced.
Bleak unemployment estimates soon followed the releases. The rate stands to nearly triple to 9.6% by the end of April if those applying for unemployment benefits fail to find work, Luke Tilley, chief economist at Wilmington Trust, said.
A New York Times estimate published Friday pegs the current unemployment rate at 13% after projecting jobless claims filed after March 28 and a rapid slowdown in hiring activity.
Economists at the Center for Financial Economics at Johns Hopkins University said the rate could surge to 20% in six months and deemed hopes of a quick retracement “comical.”
Replying to the CFE’s estimate, Krugman agreed that “balance sheet damage will hinder recovery even when the virus subsides.” Yet the economist classified the center’s six-month timeline as “wildly optimistic,” adding “we may well be there in two weeks.”
Krugman has repeatedly sounded the alarm on the coronavirus’s fallout and economists’ optimism for a sharp rebound. The lasting impact fueled by massive layoffs, revenue loss, and state-level financial tightening is a “huge fiscal time bomb,” he told Business Insider on Thursday. Smaller governments hold the key to a speedy recovery and require far more aid than Congress set aside in its $2 trillion stimulus measure, he added.
“They’re losing tax revenue. They’re having extra expenses. They’re going to have to make that up in the near future, which means that they’re going to be laying off,” he said. “It’s going to be a lot like what happened after the 2008 crisis when layoffs of school teachers, layoffs of government employees were a big factor in holding back recovery.”
While state and local governments will reprise their roles from the last recession, the nationwide downturn won’t mimic the financial crisis, Krugman said. The slump will first arrive with the immediate shutting down of nonessential businesses and services, similar to a “medically induced coma where you shut down major parts of the brain” to aid healing, he said.
The long-term consequences hit when a lack of sufficient aid leaves businesses floundering, states slashing spending, and the economy experiencing a more “conventional recession.”
“If you’re thinking that this is just a replay of 2008, you’re missing probably the bigger part of the story, but there are pieces,” Krugman said. “That part should be avoidable if we act forcefully enough, which we haven’t so far.”
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