Stock markets tumble as another 1.5m Americans
file for unemployment
Dow Jones loses more than 1,800 points while S&P
down 5% after US coronavirus infections hit 2m
Dominic
Rushe and Amanda Holpuch in New York
Thu 11 Jun
2020 17.24 BSTFirst published on Thu 11 Jun 2020 13.32 BST
Stock
markets tumbled around the world on Thursday amid growing fears over the
long-term economic impact of the coronavirus pandemic.
The sell
off started after the US labor department announced another 1.5 million people
had filed for unemployment benefits and the number of coronavirus infections
passed 2m even as states across the US continued to relax their quarantine
measures.
Stock
markets have rallied – some to record highs – in recent weeks as investors have
bet that economies would reopen without a surge infections and that the short,
sharp shock of quarantine would be followed by a swift economic reversal.
As traders
weighed the morning news for signs about how long the pandemic will sap global
growth the major markets all turned negative, with the Dow Jones closing down
over 1,800 points (7%) the S&P down 6% and the Nasdaq – which recently hit
a record high – also losing 5%. In Europe all the markets closed down with the
FTSE 100 in London losing 4%.
In just 12
weeks more than 44 million claims have been made for benefits as people lost
their jobs. Rehiring appears to have started. Last week the labor department
said the unemployment rate had dipped in May to 13.3% from 14.7% in April –
although officials said difficulty collecting data meant the figure was probably
3% higher.
Last night
the US passed another grim milestone as the number of confirmed cases of
Covid-19 passed 2m in the US and more than 115,000 people have died.
Yesterday
Jerome Powell, chair of the Federal Reserve, said the coronavirus was the “biggest
economic shock” in living memory and warned it would be a long road to
recovery. The central bank expects unemployment to dip to 9.3% by the year end,
a sharp fall but still nearly three times as high at the 3.5% recorded in
February. Powell warned that while the trend was positive it would be
“difficult for many people to find work” for “an extended period”.
Last week
was the second week in a row that unemployment claims were below 2m, a sign
that layoffs are slowing from the peak of 6.6m in April. The numbers, however,
remain historically high. In the last recession, the highest number of weekly
unemployment claims peaked at 665,000 in March 2009, and the previous all-time
mark was 695,000 in October 1982.
“The
downward trend is obviously good news, but in the context of an economy that is
reopening it is extremely high, especially when viewed against previous
recessions,” James Knightley, chief international economist at ING, wrote in a
note to investors.
Jobless
claims are an application for unemployment benefits submitted to a state labor
department. The weekly numbers are seen as a proxy for unemployment trends but
not an entirely reliable one. Not every person who is laid off applies for
benefits, and not every individual who applies will be counted as making a
claim. On top of that states have struggled with the sheer volume of claims,
leading to huge backlogs.
The
Department of Labor said the number of people actually receiving benefits
(known as continuing claims) was 20.9 million for the week ending 30 May, a
small decline from the week before.
The numbers
are also declining in part because of the paycheck protection program, part of
a historic fiscal stimulus package worth nearly $3tn, that offers businesses
loans that can be partially forgiven if used for employee salaries.
“We are
seeing the labor market high on PPP money,” said Sung Won Sohn, a business
economics professor at Loyola Marymount University in Los Angeles. “Once it
runs out we might see a significant increase in layoffs again.”
Ashley
Harris clocked off from her last shift as a cocktail server at Harrah’s
Philadelphia Casino at 2am in mid-March. She had worked at the casino for 10
years and hopes to get rehired, but her most pressing concern is the imminent
end of the federal government’s $600-a-week expanded unemployment insurance
scheme and her health insurance.
Harris said
the end of the expanded benefits – currently set to expire at the end of July –
will be devastating.
“For them
to just cut off the extra $600, which is helping, is going to affect me in more
ways than I can ever imagine,” Harris said. “If I get sick, I won’t be able to
pay bills.”
Democrats
are fighting for an extension to the $600 payments but face stiff opposition
from Republicans who argue that it is a disincentive for people to return to
work.
The Senate
majority leader, Mitch McConnell, has reportedly told House Republicans the
money “will not be in the next bill”.
Reuters contributed to this article
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