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CIO Strategy Bulletin: More answers to your great questions

David Bailin

By David Bailin

Chief Investment Officer

March 25, 2020Posted InEquities, Fixed Income and Investment Strategy

  1. When the Virus Crisis shows up in the data, what will it look like?

On Thursday, March 26th at 8:30 AM the Department of Labor will publish data showing the first full week’s impact of the virus on unemployment. It will not be pretty. New York, New Jersey, California and Illinois (25% of 2018 US GDP or roughly 10% more than all of German GDP) are closed for business. Nearly 60% of the US workforce are paid hourly, with a concentration in the retail and hospitality sectors.

Ironically, the “best case” scenario for workers, firms and the economy is that all employees be furloughed immediately, such that they can receive unemployment benefits. This will prevent a total collapse in income and preserve crucial cash for business solvency. That said, state unemployment benefits vary greatly in value (with maximum weekly benefits varying from 4% of quarterly wages capped at $240 to ½ normal weekly pay capped at $795) and length (12 to 30 weeks) per

Citi Private Bank expects that unemployment claims for this first week will be the largest ever on record, with more than two million filing. Over the next four weeks, assuming that 50% of the US is sheltered in place, we expect that there will be 10 million unemployed. And at its peak, we could imagine unemployment reaching 15-18% of the total US workforce, representing a staggering 25 million people. As discussed in our related report “What It Will Take,” we believe massive policy interventions from a quick and flexible government can mean that a large part of this employment decline could be recovered, most ideally in the year ahead.

Looking at future data, we expect that reports of small business confidence will likely fall to the worst level ever, as will expansion plans and investment intentions. Crucial areas to watch are investment, construction and trade. In many areas, construction has been allowed to continue, but projects are also being mothballed and cancelled.

Read our answers to eight more key questions.