Category Archives: recession forecast

How High Could U.S. Unemployment Rise in the Coronavirus Recession?

The U.S. Bureau of Labor Statistics released its Employment Situation report for March 2020 early today, the first monthly report since the coronavirus recession began in mid-March. Here's how it describes the change in non-farm employment since the BLS' February 2020 report:

Total nonfarm payroll employment fell by 701,000 in March, and the unemployment rate rose to 4.4 percent, the U.S. Bureau of Labor Statistics reported today. The changes in these measures reflect the effects of the coronavirus (COVID-19) and efforts to contain it. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.

Article in the newspaper detailing the layoffs that continue to happen around the world because of the SARS-CoV-2 coronavirus pandemic - Source: James Yarema, Unsplash - https://unsplash.com/photos/z0rAZ0ghlB4

The data from this report was collected via the BLS' monthly survey of business establishments covering pay periods including 12 March 2020, and as such, represents a snapshot in time from just before President Trump declared a national emergency on 13 March 2020 and a week before state governors began ordering residents to stay-at-home and statewide business closures on 19 March 2020.

In the two weeks since then, the number of initial unemployment insurance claims has spiked sharply upward, breaking previous records, with 3.3 million filing new unemployment claims as of 26 March 2020 and another 6.6 million on 2 April 2020.

Those newly unemployed Americans will be showing up on the April 2020 employment situation report, but the bigger question begging to be answered is how high could U.S. unemployment rise in the coronavirus recession?

Back on 22 March 2020, St. Louis Federal Reserve Bank president Jim Bullard estimated the unemployment figure may hit 30% during the second quarter of 2020, but where does that number come from? After all, the unemployment rate in February 2020 was 3.5%, and that would be a huge change.

The St. Louis Fed's Miguel Faria-e-Castro worked through step-by-step how that back of the envelope estimate was calculated. In the following passage, we've added the links to the blog posts he references, other data he cites may be accessed via the Federal Reserve Economic Database (FRED):

  1. Civilian labor 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 (Famiglietti/Leibovici/Santacreu blog post)
  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)

That's useful back of the envelope math, so we've built the following tool to do it, where you may substitute the values to consider other scenarios, such as state level data or the data for other nations. If you're accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version.

Employment and Disrupted Workforce Data
Input DataValues
Civilian Labor Force in Period Before Disruption
Unemployment Rate in Period Before Disruption
Workers in Occupations with High Risk of Layoff
Workers in Most Directly Impacted Occupations

Potential Unemployment Rate from Disruption
Calculated ResultsValues
Unemployed Persons in Period Before Disruption
Estimated Layoffs from Disruption
Unemployed Persons in Period After Disruption
Unemployment Period in Period After Disruption

Running the tool with the default data, we can see where the St. Louis Fed gets its estimate of potential 32% unemployment. We should caution that this is a ballpark estimate of how high U.S. unemployment may grow, where the tool allows for more refined estimates of the impacted workforce as better information becomes available.

We've also generalized the descriptions for the affected workforce from Faria-e-Castro's description, which should make the tool more generally applicable than the specific scenario he considered.

Looking back at the employment situation in 2020-Q2, with roughly 10 million new unemployment claims filed in the last two weeks just as the quarter began, we are already nearly one fifth of the way to the St. Louis Fed's estimate of potential job losses from the coronavirus recession.

Image credit: unsplash-logoJames Yarema

Previously on Political Calculations

How High Could U.S. Unemployment Rise in the Coronavirus Recession?

The U.S. Bureau of Labor Statistics released its Employment Situation report for March 2020 early today, the first monthly report since the coronavirus recession began in mid-March. Here's how it describes the change in non-farm employment since the BLS' February 2020 report:

Total nonfarm payroll employment fell by 701,000 in March, and the unemployment rate rose to 4.4 percent, the U.S. Bureau of Labor Statistics reported today. The changes in these measures reflect the effects of the coronavirus (COVID-19) and efforts to contain it. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.

Article in the newspaper detailing the layoffs that continue to happen around the world because of the SARS-CoV-2 coronavirus pandemic - Source: James Yarema, Unsplash - https://unsplash.com/photos/z0rAZ0ghlB4

The data from this report was collected via the BLS' monthly survey of business establishments covering pay periods including 12 March 2020, and as such, represents a snapshot in time from just before President Trump declared a national emergency on 13 March 2020 and a week before state governors began ordering residents to stay-at-home and statewide business closures on 19 March 2020.

In the two weeks since then, the number of initial unemployment insurance claims has spiked sharply upward, breaking previous records, with 3.3 million filing new unemployment claims as of 26 March 2020 and another 6.6 million on 2 April 2020.

Those newly unemployed Americans will be showing up on the April 2020 employment situation report, but the bigger question begging to be answered is how high could U.S. unemployment rise in the coronavirus recession?

Back on 22 March 2020, St. Louis Federal Reserve Bank president Jim Bullard estimated the unemployment figure may hit 30% during the second quarter of 2020, but where does that number come from? After all, the unemployment rate in February 2020 was 3.5%, and that would be a huge change.

The St. Louis Fed's Miguel Faria-e-Castro worked through step-by-step how that back of the envelope estimate was calculated. In the following passage, we've added the links to the blog posts he references, other data he cites may be accessed via the Federal Reserve Economic Database (FRED):

  1. Civilian labor 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 (Famiglietti/Leibovici/Santacreu blog post)
  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)

That's useful back of the envelope math, so we've built the following tool to do it, where you may substitute the values to consider other scenarios, such as state level data or the data for other nations. If you're accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version.

Employment and Disrupted Workforce Data
Input DataValues
Civilian Labor Force in Period Before Disruption
Unemployment Rate in Period Before Disruption
Workers in Occupations with High Risk of Layoff
Workers in Most Directly Impacted Occupations

Potential Unemployment Rate from Disruption
Calculated ResultsValues
Unemployed Persons in Period Before Disruption
Estimated Layoffs from Disruption
Unemployed Persons in Period After Disruption
Unemployment Period in Period After Disruption

Running the tool with the default data, we can see where the St. Louis Fed gets its estimate of potential 32% unemployment. We should caution that this is a ballpark estimate of how high U.S. unemployment may grow, where the tool allows for more refined estimates of the impacted workforce as better information becomes available.

We've also generalized the descriptions for the affected workforce from Faria-e-Castro's description, which should make the tool more generally applicable than the specific scenario he considered.

Looking back at the employment situation in 2020-Q2, with roughly 10 million new unemployment claims filed in the last two weeks just as the quarter began, we are already nearly one fifth of the way to the St. Louis Fed's estimate of potential job losses from the coronavirus recession.

Image credit: unsplash-logoJames Yarema

Previously on Political Calculations

1 in 26 Chance of U.S. Recession Starting Between Mar-2020 and Mar-2021

Since our previous update nearly six weeks ago, the U.S. Treasury yield curve has crashed and the Federal Reserve has implement not just one, but two emergency rate cuts, the latest slashing the Federal Funds Rate to a target range between 0% and 0.25% on Sunday, 15 March 2020.

The two emergency rate cuts have come in the last two weeks, as the impact of the COVID-19 coronavirus pandemic has begun to affect the U.S. economy and its prospects.

We're making a note of that recent timing because the recession probability track is based on 90-day rolling averages for both the spread between 10-Year and 3-Month constant maturity U.S. Treasuries and the Federal Funds Rate, which might as well have the turning radius of a large container ship. Never the less, it is showing signs of reversing its recent trend of improvement, where it now indicates a 4% chance, or a 1-in-26 probability, the National Bureau of Economic Research will someday find a national recession began in the United States between March 2020 and March 2021.

U.S. Recession Probability Track Starting 2 January 2014, Ending 16 March 2020

Those odds had previously peaked at 1 in 9 back on 9 September 2019, where if the NBER eventually NBER ever does determine that the national U.S. economy entered into recession in either 2019 or 2020, they will most likely identify a month between September 2019 and September 2020 as its starting point. Based on the evolving situation with the fallout from the coronavirus pandemic, we would anticipate that narrowing to be somewhere between December 2019 and September 2020.

These probabilities come from a recession forecasting method developed back in 2006 by Jonathan Wright, which uses the level of the effective Federal Funds Rate and the spread between the yields of the 10-Year and 3-Month Constant Maturity U.S. Treasuries to estimate the probability of recession based on historical data.

Given current events, we'll likely return to presenting updates in this series roughly every three weeks, roughly coinciding with every other regularly scheduled Federal Open Market Committee meeting at the Federal Reserve. But you don't have to wait for us if you want to get an update on the latest recession odds sooner! Our recession odds reckoning tool is both free and really easy to use. Plug in the most recent data available, or the data that would apply for a future scenario that you would like to consider, and compare the result you get in our tool with what we've shown in the most recent chart we've presented above to get a sense of how the recession odds are changing.

Meanwhile, if you know anyone from the Fed who might be looking for ideas of what else they might do to forestall worse economic problems, send them here and tell them to scroll to the first update....

Previously on Political Calculations

We've been tracking the ebb and flow of heightened recession odds since June 2017 - here are all the posts in our latest recession forecasting series!



1 in 28 Chance of U.S. Recession Starting Between Jan-2020 and Jan-2021


The Federal Reserve's Open Market Committee (FOMC) wrapped up its latest two-day meeting on 29 January 2020, signaling they would hold the Federal Funds Rate within its current target range of 1-1/2 to 1-3/4 percent.

That lack of change combines with a U.S. Treasury yield curve whose rolling one-quarter average has steepened on average during the last six weeks since the FOMC's December 2019 meeting, even though the bond market's reaction to the potential economic impact of China's coronavirus crisis has significantly flattened the yield curve since it hit in the last week. All that together means the probability that a new economic recession will someday be determined to have started in the United States between January 2020 and January 2021 has fallen to 1 in 28, or roughly, a 3-4% probability, where the chart below is rounding down from a more precise estimate of roughly 3.5% in its latest update.

U.S. Recession Probability Track Starting 2 January 2014, Ending 29 January 2020

Back on 9 September 2019, those odds had previously peaked at 1 in 9, where if the NBER eventually NBER ever does determine that the national U.S. economy entered into recession in either 2019 or 2020, they will most likely identify a month between September 2019 and September 2020 as its starting point.

These probabilities come from a recession forecasting method developed back in 2006 by Jonathan Wright, which uses the level of the effective Federal Funds Rate and the spread between the yields of the 10-Year and 3-Month Constant Maturity U.S. Treasuries to estimate the probability of recession based on historical data.

While we're now providing this analysis after each of the Federal Open Market Committee' regularly scheduled meetings every six weeks, you don't have to wait for us if you want to get an update on the latest recession odds sooner! Our recession odds reckoning tool is both free and really easy to use. Plug in the most recent data available, or the data that would apply for a future scenario that you would like to consider, and compare the result you get in our tool with what we've shown in the most recent chart we've presented above to get a sense of how the recession odds are changing.

Depending upon how the yield curve behaves over the next several weeks, we may resume presenting updates in this series more frequently. We'll see how that goes.

Previously on Political Calculations

We've been tracking the ebb and flow of heightened recession odds since June 2017 - here are all the posts in our latest recession forecasting series!


1 in 18 Chance of U.S. Recession Starting Between Dec-2019 and Dec-2020

The Federal Reserve's Open Market Committee (FOMC) concluded its two-day December 2019 meeting on 11 December 2019, and tried very hard to give the impression that it was done adjusting short term interest rates in the U.S. for now, holding the Federal Funds Rate in its current target range of 1-1/2 to 1-3/4 percent after having reduced it several times earlier in the year.

Combined with a generally rising spread in the U.S. Treasury yield curve, the lowered Federal Funds Rate has reduced the probability that a new economic recession will someday be determined to have started in the United States during the twelve months from December 2019 to December 2019. Through 11 December 2019, those odds now stand at 1 in 18, which rounds down to roughly a 5% probability.

U.S. Recession Probability Track Starting 2 January 2014, Ending 11 December 2019

Those odds had previously peaked at one in nine back on 9 September 2019, where if the NBER eventually NBER ever does determine that the national U.S. economy entered into recession at some future time, they will most likely identify a month between September 2019 and September 2020 as its starting date.

These probabilities come from a recession forecasting method developed back in 2006 by Jonathan Wright, which uses the level of the effective Federal Funds Rate and the spread between the yields of the 10-Year and 3-Month Constant Maturity U.S. Treasuries to estimate the probability of recession based on historical data.

With the rolling one-quarter average of the spread between the 10-Year and 3-Month U.S. Treasuries having turned positive, we will be reducing the frequency at which we will provide updates to this series to coincide with the FOMC's meeting schedule, which are held at approximately six week intervals. Should events cause the Treasury yield curve to re-invert however, with the yield on the 10-Year constant maturity U.S. Treasury falling below the yield of the 3-Month constant maturity U.S. Treasury, we will resume more frequent updates.

But you don't have to wait for us to analyze the recession odds for yourself! Just take advantage of our recession odds reckoning tool, which is really easy to use. Plug in the most recent data available, or the data that would apply for a future scenario that you would like to consider, and compare the result you get in our tool with what we've shown in the most recent chart we've presented above to get a sense of how the recession odds are changing.

As we get set to close the books on 2019, there are several hanging risks that could prompt such a change, with the potential expansion of the Fed's current QE-like effort into a full-on quantitative easing program to tame a liquidity crisis that has developed in repurchase "repo" markets over the last several months leading the list.

Previously on Political Calculations

We've been tracking the ebb and flow of heightened recession odds since June 2017 - here are all the posts in our latest recession forecasting series!