Pandeconomics & 32% unemployment?

Mobster Al Capone Ran a Soup Kitchen During the Great Depression ...

The Congressional Budget Office (CBO) has put forward its assessment of what the pandemic will do to the coming 2Q GDP number. It said,

  1. Gross domestic product is expected to decline by more than 7% during the second quarter. If that happened, the decline in the annualized growth rate reported by the Bureau of Economic Analysis would be about four times larger and would exceed 28%. Those declines could be much larger, however.
  2. The unemployment rate is expected to exceed 10% during the second quarter, in part reflecting the 3.3 million new unemployment insurance claims reported on March 26 and the 6.6 million new claims reported this morning. (The number of new claims was about 10 times larger this morning than it had been in any single week during the recession from 2007 to 2009.)
  3. Interest rates on 10-year Treasury notes are expected to be below 1% during the second quarter as a result of the Federal Reserve’s actions and market conditions.

That sounds pretty tame vs what the St Louis Federal Reserve has estimated.

According to the Bureau of Labor Statistics (via FRED), the civilian labour force consisted of 164.5 million people, and the unemployment rate was 3.5%. This means that there were approx 5.76 million unemployed in the U.S. in February. FRED has estimated on the back of an envelope that 47.05 million people being laid off during this period.

Summing to the initial number of unemployed in February, this resulted in a total number of unemployed persons of 52.81 million. Given the assumption of a constant labour force, this resulted in an unemployment rate of 32.1%

  1. Civilian labour force in February 2020 = 164.5 million (BLS via FRED)
  2. Unemployment rate in February 2020 = 3.5% (BLS via FRED)
  3. Unemployed persons in February 2020 = 5.76 million (#1 * #2)
  4. Workers in occupations with high risk of layoff = 66.8 million (Gascon blog post)
  5. Workers in high contact-intensive occupations = 27.3 million 
  6. Estimated layoffs in second quarter 2020 = 47.05 million (Average of #4 and #5)
  7. Unemployed persons in second quarter 2020 = 52.81 million (#3 + #6)
  8. Unemployment rate in second-quarter 2020 = 32.1% (#7 / #1)

If we backed out the more conservative figure of 27.3 million high contact occupations (#5) and added it to currently unemployed people (#3) we would get a 20% unemployment rate.

N.B. Great Depression unemployment peaked at 24.9%

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