WASHINGTON — Companies and consumers have scrapped travel plans, and factories have endured broken supply chains from the coronavirus outbreak. If employers were to respond by slashing jobs, it would significantly escalate the economic damage.
For that reason, a range of job market barometers will provide some of the most vital signals about the economy in the coming weeks and months. So far, they have yet to show much impact.
Widespread layoffs can transform slowdowns in just one or two sectors — the travel industry, say, or manufacturing — into a full-blown downturn for the overall economy. When workers lose jobs and pay, they typically cut spending. Their friends and relatives who are still employed grow anxious about their own jobs and wary of spending freely, a cycle that can trigger further job cuts.
Layoffs “tend to build on each other,” said Tara Sinclair, an economist at the jobs website Indeed. “That spiral is really what we’re worried about happening.”
On Friday, the government will issue its jobs report for February, which won’t likely reflect much damage from the outbreak. The data for the report was gathered mainly in the second week of February, before the virus began to spread through the United States.
Economists have forecast that the February report will show that employers added 170,000 jobs and that the unemployment rate remained at a very low 3.6%, according to data provider FactSet.
So long as monthly job gains remain above 100,000 or so, the unemployment rate should stay low and the economy will avoid a downturn, Mark Zandi, chief economist at Moody’s Analytics, said. If the monthly pace were to sink below that level for a sustained period, the unemployment rate would likely rise.
“Once the unemployment rate notches higher, that’s when a recession becomes a real threat,” Zandi said.
One rule of thumb, developed by Claudia Sahm, a former Federal Reserve economist, is that a recession becomes likely once the three-month average of the unemployment rate rises one-half point from its lowest level in the past year. That means that if the jobless rate were to exceed 4% over several months, a downturn could result.
The timeliest gauge of layoffs is the government’s weekly report on applications for unemployment benefits. Only people who are laid off are eligible for the aid.
The latest data, issued Thursday, was reassuring: It showed that the number of people seeking unemployment benefits dropped 3,000 to 216,000 in the week that ended Feb. 29. That is roughly the same as the average over the past month and is a very low level historically.
“If this is devolving into a recession, there will have to be layoffs,” Zandi said.