Cleveland Fed Research Points to Less Severe Unemployment Rate

(Bloomberg) -- Projections for U.S. unemployment hitting 20% or higher may be too severe, according to a paper released Thursday by the Federal Reserve Bank of Cleveland.

The authors forecast the jobless rate for April would come in at 12% and top out at 16% in May, assuming that social distancing measures end some time in June.

“We expect that the unemployment rate then will start declining as the mitigation efforts begin to subside starting sometime in June,” the authors wrote. “Our estimate for the unemployment rate at the end of the year is 7.5%.”

The paper came on the same day that initial jobless claims reported by the Labor Department showed 3.17 million Americans lost their jobs last week, bringing the seven-week total to about 33.5 million.

Authors Aysegul Sahin, Murat Tasci and Jin Yan noted that by simply adding up jobless claims, unemployment would appear to have already reached 18% in April. Adding an estimate for those who failed to file for benefits, it may be much higher.

But that would ignore the history of flows into and out of unemployment that occur even with little or no job creation, they said.

That’s not all good news. Some people won’t show up in the official unemployment statistics as they drop out of the workforce altogether because of health concerns, loss of child-care availability or discouragement over job prospects. But others may have already jumped back into jobs.

“Survey evidence and public announcements about hiring plans of businesses point to strong demand for some services, such as logistics, delivery and specific retail,” they wrote.

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