We are now six weeks and over 30 million new unemployment claims into the US fallout from the coronavirus pandemic. Despite significant drops in new applications over the last three weeks, new claims for the week ending April 25 were still five times that of the worst week for new unemployment claims during the Great Recession of 2008-2009, as can be seen in the chart below. Worse yet, as eye-popping as the latest figures from the Labor Department are, they still don’t fully capture the extent of the layoffs due to the persistent lag in the processing of new claims and the reality that the Labor Department statistics may well be significantly understating the actual number of new unemployment claims due to the unprecedented level of new claims overwhelming unemployment offices and staff.

While initial job losses were concentrated in the retail and hospitality sectors in the states most affected early on, recent job losses have been much more widespread. Suppliers and other industries across the nation are adding heavily to an unemployment rate which now stands at 21% and has more than erased the 22 million jobs created in the longest employment boom in US history. Worse yet, it is estimated that over 95% of these job losses have come from the private sector, with public sector employment remaining relatively stable thus far. With wide-ranging forecasts of up to an additional 5-10 million new unemployment claims expected in May, it now seems entirely probable that, depending on the success of state efforts to reopen the economy, the US unemployment rate will reach or exceed the peak rate of the Great Depression.

With the global economy collapsing at a pace not seen since World War II, the CARES Act, passed by Congress and signed into law on March 27, 2020, provided $2.2 trillion in economic relief for the American economy. It also sought to address the reality that newly unemployed workers needed money quickly to continue paying bills and to avoid the hole that the larger economy has fallen into from getting deeper and more difficult to crawl out of. While individual states manage their own unemployment insurance programs and set the level of benefits and eligibility rules, they are also now responsible for administering new federal emergency relief benefits that provide payments for an additional 13 weeks of coverage, cover previously ineligible workers like part-timers and freelancers and add $600 to the regular weekly unemployment benefit.

While historically unprecedented in scale, and nearly three times the size of the Great Recession’s $831 billion 2009 Recovery Act, the realization that the CARES Act would be insufficient came quickly. Just two weeks ago, less than 30 days after the signing of the CARES Act, an additional $484 billion relief package was approved, consisting of loans to small businesses, additional funding for COVID-19 testing and aid to hospitals, to further support and expand the Cares Act. Of the $484 billion, $321 billion is earmarked to replenish the original small business loan and grant program from the CARES Act. Even with the additional small business funds being made available last week, the continued flood of new loan applications is expected to exhaust the additional relief funds by the end of this week as more that 60% of the new relief funds were allocated in the first five days of eligibility.

While governments across the globe, both local and national, are struggling with when and how to walk the tightrope of re-opening economies, it’s not just government, but individual businesses that will need to convince employees and consumers that it’s safe to return. As several US states began relaxing restrictions May 1, there does not seem to be broad support for this action and the CDC is already predicting the impact of these early state openings will cost an additional 100,000+ US lives. Despite coverage focused on government re-opening plans and re-opening procedures, it will ultimately be the consumer who will drive the shape of the economic recovery.

While COVID-19 may or may not forever change consumer behavior, one thing is certain. Despite the most thoughtful and deliberate plans to re-open local and state economies, local, state and the national economies will continue to be affected as long as the consumer feels unsafe.

The above commentary represents the opinions of the author as of 5.5.20 and are subject to change at any time due to market or economic conditions or other factors.The information above is for educational and illustrative purposes only and does not constitute investment, tax or legal advice.