- Today’s US initial jobless claims data marks the first piece of data showing the dramatic economic fallout from COVID-19. Initial claims for unemployment benefits surged last week by 3 million to 3.3 million – prior record was 695 thousand. While the initial claims figure is alarming, the surge was not only economic in nature but rather reflected the government efforts to stem the spread of the virus. As such, instead of the gradual upswing seen during more ‘typical’ recessions, initial claims should decline after the initial spike in the coming weeks. Our analysis suggests that the surge in initial claims could push the unemployment rate to 12%. While the delay in Canadian jobless claims makes the jobless rate forecast less precise, we anticipate it to rise to low double-digits as well.
- Announcements on fiscal stimulus continue to roll in. These are critical to tempering the downturn and essential to helping kick-start the recovery.
- Yesterday, the federal government announced an expansion of income support for workers, now called the Canada Emergency Response Benefit. It broadens the prior ECB and ESB programs to include unemployed workers but also workers on payroll but not being paid. The expansion increased the size of the fiscal stimulus package from $82 billion to $107 billion, representing 4.5% of GDP. Business support measures are likely in the works. Finance Minister Morneau said that the oil-patch should see aid “potentially [in] days”. Other hard-hit sectors will also require support.
- The Ontario government released an Economic and Fiscal Update. Given the time it takes to put together the update and develop fiscal measures, it is understandable that the economic forecasts (which are for zero growth in 2020) and budgetary projections are not reflecting the severe recession now underway. More important than the economic and fiscal numbers, Ontario announced $17 billion in new measures to support economic growth and respond to COVID-19: $3.3 billion for health care; $3.7 billion in direct support; deferring up to $10 billion in taxes for individuals and business.
- A massive US fiscal stimulus package is currently being debated in Congress. While some of the details may still change, the bill will almost certainly be passed by Congress and be signed by President Trump later this week. The fiscal stimulus at roughly $2 trillion is by far the biggest stimulus package ever. The spending bill amounts to 10% of GDP and will eat up nearly 60 cents of every dollar the federal government expects to collect in tax receipts this fiscal year. The package is twice as large as the $831 billion signed into law by President Obama eleven years ago.
- The bill envisions one-time payments of $1,200 and $500 for each adult and child, respectively, with the money expected to support consumer spending as businesses reopen. The package also sets aside some $500 billion for loans to large corporations and $367 billion to help small businesses, aimed at supporting hardest hit industries and ensuring access to credit and liquidity amidst the market turmoil.
- A recent interview with Ben Bernanke on CNBC has received considerable attention. Bernanke, who was the Fed Chair during the Great Recession and studied the Great Depression, said that the current downturn “is a very different animal than the Great Depression,” and “has some of the same feel of panic, some of the feel of volatility, [but is] really much closer to … a natural disaster than it is to a classic 1930s-style depression.” Bernanke said he does expect a “very sharp” U.S. recession, but also a “fairly quick” recovery.
