Last week’s jump in U.S. initial jobless claims to 3.28 million was a real shock and, take care, April could and probably will be even worse.

Of course, a bad number was quite expected by markets as it provides one of the first clues on the economic impact of the coronavirus, when near 1 in 3 Americans are in lockdown and many non-essential businesses have been forced to close.

MarketWatch informed that states like New York, New Jersey and California “underreported” the number of initial jobless claims because the flood of applications simply overwhelmed the small staffs who handle these applications.

Now, the scale of the fiscal stimulus of $2 trillion that President Donald Trump signed on Friday afternoon is indeed very large.

President Trump said in remarks on Friday in the Oval Office in a nod to the size of the package: “I never signed anything with a T on it” the Wall Street Journal reported.

That said, investors could do well not overlooking the fact that U.S. policy is more focused on dealing with the consequences of unemployment than with preventing unemployment itself, though there are provisions to try and prevent job losses in the fiscal plan. That means that the initial jobless claims number is likely to continue to be high and the unemployment is likely to rise faster and perhaps go higher than, for example, unemployment in Europe.

It’s a fact, the coronavirus crisis requires a “fiscal” response and the Federal Reserve’s policy is very much the junior partner in all of this.

With this in mind, for investors it could be worth summarizing the four main areas for a fiscal policy:

• First, there are the traditional automatic stabilizers. People who are unemployed, get unemployment benefits, tax receipts go down.  Automatic stabilizers are not a stimulus, they are what one could call anti-depressants. The aim is to stop things getting worse. They increase the deficit but are not normally included in the numbers we hear about in the media.
• Second, there are the schemes to keep people in jobs like for example, the UK is paying 80 percent of the workers’ wages. These are not a stimulus, they are an antidepressant. They increase the deficit, but are also not normally included in the numbers in the media.   
• Third, there is new government spending. This includes grants to companies, spending on healthcare, individuals who earn $75,000 or less that will get direct payments of $1,200 each, and so on… They are an antidepressant in phase 1, which is the current economic lockdown, and they are a stimulus in phase 2, which is when the economy will bounce back. They increase the deficit and are always included in the numbers in the media.
• Fourth, there are loan guarantees and similar schemes. These are the very big numbers we hear about. This is where the government guarantees banks against some of their possible losses in the cases banks lend to companies. These are an antidepressant in phase 1 as they help companies to stay solvent and buy time as grants and other assistance work through the system. These are a stimulus in phase 2 when there is cheap money to invest with. It’s important to note that the government only has to come up with cash if the loan defaults. Of course, that will not happen in most cases as it will not happen very quickly. So, as a result, these do not increase the deficit unless there are defaults. They are very often included in the numbers in the media because they are very large numbers, and that helps to sensationalize the issue. 

In the context of all the above, the U.S. Private Sector Job Quality Index (“JQI”) just released an interesting statement on the Vulnerabilities of Jobs in Certain Sectors related to the Covid-19 Economic Shutdown that reads among other things: “In total, we estimate that over 37 million U.S. jobs may be vulnerable to potential layoffs in the short term.”

For investors it’s important to keep in mind that it will cost tremendous amounts of money and much more time than many think today is the case, before the coronavirus crisis is over.

With what we know today, as an investor I certainly wouldn’t buy yet the so-called dips, but instead, I would remain in “safe” cash-equivalent monetary instruments like, for example, U.S. Treasuries.

No, the bottom is still not in sight.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.