Based on 26 Million Claims, What's the Unemployment Rate?

Mish

In the last 5 weeks, 26.453 million people filed unemployment claims. Let's estimate the unemployment rate.

With each passing week the grim stats add up. But it also makes it easier to estimate the unemployment rate for April.

Let's crunch the numbers starting with totals from the March Jobs Report and today's report Over 26 Million Unemployment Claims Filed in Just 5 Weeks.

Household Survey Numbers

Household Survey Data March 2020

Unemployment Rate Calculations

The unemployment rate does not come from caims. Rather, it comes from a phone survey in the week that contains the 12th of the month. That makes the current reference period April 12-18.

The March unemployment rate of 4.4% was wildly low (and will later be revised), because the reference week was before the mass layoff started. That will not be the case in April.

Estimate of Claims to Come

Over 26 million people filed a claim. But the important number is how many qualify who did not file. 

Those people will turn up in the Household survey whether they filed or not. I estimate that count at 4 million. 

Estimate of the Unemployment Rate

If we assume claims approximate Household Survey answers and further assume my estimate 4 million more qualify, we can estimate the unemployment rate as follows:

(New Claims + Existing Unemployed + Estimate of Claims to Come) / Labor Force

26.453 million + 7.140 million + 4.00 million / 162.913 = 23.1% 

That is higher than my 18% Unemployment Estimate a Week Ago. Why?

  • Last week I accidentally plugged in the "change" in unemployment of 1.353 million, not the existing unemployed at 7.120 million (undercounting by 5.767 million).
  • We have another week of claims and my current total + new guess of claims to come is higher than last week. This is a net difference of about 3 million.

Prior to last week my estimates based on claims have been in the 21-24% range and here we are again.

Michigan Unemployment Rate

Michigan has been swamped with claims. Over a million people have filed for unemployment claims, out of a labor force of under 5 million.

A recent number crunch on Michigan yields an unemployment rate of 24%-29%, truly a disaster.

For details, please see Over 25% of Michigan Workforce Filed For Unemployment.

Caveats 

  1. Just because people filed and unemployment claim does not mean they qualify according to BLS Household Survey guidelines. 
  2. The reverse also holds true. People may qualify for unemployment without filing. Gig workers in particular fall into this category. 
  3. Decline in Labor Force
  4. BLS uncertainties
  5. Covid-19 Relief Act

The BLS FAQ on the Impact of the Coronavirus  Pandemic on the  Employment Situation for March 2020 covers point #3. 

Households are in the survey’s sample for a total of 8 months, meaning that interviewers attempt to  interview someone in the household each of those 8 months. Generally, households entering the sample for their first month are interviewed through a personal visit, and households in their fifth month also often receive a personal visit. Interviews for other months are generally conducted by telephone. 

For the safety of both interviewers and respondents, the Census Bureau suspended in-person interviews  on March 20, 2020. Additionally, the two Census Bureau call centers that assist with telephone interviewing were closed. The response rate for the household survey was 73 percent in March 2020, about 10 percentage points lower than in preceding months. 

Response rates for households normally more likely to be interviewed in person were particularly low [20% lower]. 

Covid-19 Relief Act

Please consider the Increased Unemployment Benefits Under the CARES Act (COVID-19 Relief Act).

Generally, if you take a leave or a reduction in hours as a result of the downturn, you will be eligible for Unemployment Insurance benefits. However, the scale and scope of these benefits will vary depending on the state where you are based.

The important points above concern a "reduction in hours" and the state-to-state variance. 

Remember, in the Household Survey if you work as little as 1 hour you are not unemployed.

Potential Unemployment Overcounts in My Calculation

  • Those furloughed but still getting paid are counted as employed, whether they filed a claim or not. 
  • People filing on the basis of reduced hours as per state law. 

Potential Unemployment Undercounts in My Calculation

  • People who worked no hours but did not file
  • People not picked up in the BLS Household Survey who qualify.

I suspect we have more overcounts from people wanting free money than undercounts of people eligible but I do not know. 

Let's crunch the number one more time assuming 6 million overcounts.

Factoring in 6 Million Net Overcounts

(New Claims + Existing Unemployed + Estimate of Claims to Come - Overcounts) / Labor Force

26.453 million + 7.140 million + 4.00 million - 6.00 million / 162.913 = 19.4% 

Decline in Labor Force

I held the Labor Force constant. It won't be. Some people will retire. 

The labor force fell by 1.633 million in March to  162.913 million. What if it fell by another 4 million.

26.453 million + 7.140 million + 4.00 million - 6.00 million / 158.913 = 19.9%
26.453 million + 7.140 million + 4.00 million  / 158.913 = 23.6%

Synopsis Range

  • If one assumes a 6 million overcount of claims vs what the household survey shows the estimated unemployment rate is 19.4% to 19.9%
  • If one assumes no overcount the range is 23.1% to 23.6%
  • If there is an undercount the rate may top 25%

My comfort range is 17-25% with an expectation of 20-24%

If the rate is way lower, then watch the increase in U-6 unemployment which counts all those working "part-time for economic reasons", even as little as 1 hour.

A U-6 rate well into the 30% range is likely in any case.

What's Next?

On March 23, I wrote Nothing is Working Now: What's Next for America?

I noted 20 "What's Next?" things.

Covid-19 Recession Will Be Deeper Than the Great Financial Crisis

On April 1, I commented, the Covid-19 Recession Will Be Deeper Than the Great Financial Crisis. Do not expect a V-shaped recovery.

Forever Changed

  • More teleconferencing and fewer corporate lunches
  • Less air travel, hotels, and car rentals at the personal and business level
  • More work at home
  • More do-it-yourself haircuts, nails, lawns, etc.
  • Fewer car purchases
  • Fewer home purchases
  • Accelerated online shopping and more mall closures

The knock on impacts of all of those means more bankruptcies and less employment..

Note: In case you missed the announcement, I am now on TheStreet.com/Mishtalk

The redirect is automatic and there will be no lost articles or lost comments to articles. My "room" on TheStreet will remain free of charge.

Mish

Comments (30)
No. 1-13
tokidoki
tokidoki

I think we will see some sort of infrastructure play as soon as the summer. That should turn employment and oil around some, but yeah, some businesses are toast forever.

America will need a war soon just like WW II.

Zardoz
Zardoz

It will be over in a matter of days! Dear Leader has a solution: disinfectant injections!

Cue the circus music.

Six000mileyear
Six000mileyear

Voters are pressuring politicians to re-open non-essential businesses. When some people get their jobs back, they will no longer receive unemployment insurance (UI) checks. To be eligible for UI in the future, it can take 12 to 15 months of employment. With an expected second virus peak in less than 9 months, many will lose their jobs a second time, and then be ineligible for UI. They will be worse off for trying to get non-essential businesses reopened. Be careful what you ask for; you might just get it.

gregggg
gregggg

Accessing Michigan.gov on line to file for unemployment benefits:

magoomba
magoomba

Surprised there were even 26.5 million jobs that were viable enough to get UI.
Well, they were all expendable too.

TimeToTest
TimeToTest

This is just the beginning of the virus infections.

If 20 million Americans were infected every month it would take at least 12 months to get though this. 70% infected

20,000,000 x 10% hospitalization 2,000,000 beds a month
20,000,000 x .5% IFR 100k month or 3k daily
That’s for a year.

How will the job market look in a year? What about the housing market? Stock market? Colleges? State taxes? US deficit?

I don’t think anyone on the blog can imagine the shear pain in front of us. That includes myself.

The R0 at the moment suggest this could drag on for years.

sangell
sangell

Those PPP loans may come a cropper due to the paid sick leave and family leave provisions Congress inserted in them. Millions of small businesses just can't afford to provide such benefits so they will either close or layoff more workers.

I'm also concerned about supply chain disruptions. I mentioned a story about an auto parts manufacturer in Michigan whose workers won't come back as they are making more on unemployment and not having to risk their health working on the factory floor. The auto plants want to reopen but if they can't get parts the won't be able to. Something as simple as a radio dial knob or door latch if missing can shut down a multibillion dollar auto assembly line.

hmk
hmk

Those chicken littles who want the economy in shackles because of their fear of second wave can stay home curled up in the fetal position and ask their mommy to suckle them. Most of these chicken littles snowflakes I would bet are libtards wanting to remain parasites, There will be second waves, no doubt. If appropriate precautions are undertaken it will be minimal. I believe a vaccine and or treatment will come about sooner than later. The studies in Sweden show that about 1/3 of their population has been infected and now their mortaltiy rates are calculated at .5% for now. It may of been lower had they encouraged mask wearing and social distancing. As far as UE goes many people are getting more by not working and will fight kicking and screaming if called back to work. WTF. I don't know that if their employer reports their refusal the UE benefits should stop. In theory it should but who knows. The govt, Tumps, response has been overkill on helicopter money. The financial dislocations brought about by the govt saying its okay not to pay your mortgages will have far reaching reverberations. People who can pay via their stimulus checks and lavish UE will not pay even if they can. Good luck trying to dig out of this clusterfuck.
The sooner we reopen the economy and make people go back to work the better.

Bubble_Head
Bubble_Head

I still get a quick and dirty ± 24% using the https://www.usdebtclock.org/# actual unemployed divided by the total labor force which is about 30 million less than Mish's 162 million?, Haven't bounced things off of the BLS site but the results are close to Mish's and John Williams over at Shadowstats. Debt to GDP @ ± 130% and tax revenues in deep reversal = not a good scenario. We need a massive reboot of the CCC program imho!!

numike
numike

…no major investor, really will lose. You’ve seen last week, the stock market made the largest jump since the depression — the largest jump in in 90 years.
… while the economy is going down, you realize, wait a minute they’re saving the 1 percent, or the 10 percent of the population that own 85 percent of the stocks and bonds. They’re saving the banks. They’re not saving the people, and they’re not saving the economy; they’re not saving industry; and they’re not saving small businesses.
…the bailout really is an Obama-style bailout. It goes to the banks; it goes to those companies that have drawn up wish lists by their lobbyists, such as the airlines, Boeing and the large banks.

Tony Bennett
Tony Bennett

When the economy finally begins a recovery, who will win the race for the unemployed?

New jobs vs drop in participation rate?

numike
numike

Will antibody tests for the coronavirus really change everything?
Touted as society’s way out of widespread lockdowns, scientists say the true potential of these rapidly developed tests is still unknown. https://www.nature.com/articles/d41586-020-01115-z

Roto64
Roto64

Hi Mish, thanks for giving this a shot. I have a caveat for you, though. If you look at the March report, the labor force dropped by 1,633 while unemployment rose by 1,353. The same thing will happen with the April report except my an order of magnitude greater. The reason is that a lot of the unemployed will have lost their job permanently but won't be able to do a job search due the the economic shutdown. That means that they will be out of the labor force rather than unemployed. Just as in March, the labor force decline will likely be larger than the unemployment increase.


Global Economics

FEATURED
COMMUNITY