Stock markets tumbled in the US and Europe on Thursday amid growing fears over the long-term economic impact of the coronavirus pandemic. The sell off started after the US labor department announced another 1.5 million people had filed for unemployment benefits and the number of coronavirus infections passed 2m even as states across the US continued to relax their quarantine measures. Stock markets have rallied – some to record highs – in recent weeks as investors have bet that economies would reopen without a surge infections and that the short, sharp shock of quarantine would be followed by a swift economic reversal. As traders weighed the morning news for signs about how long the pandemic will sap global growth the major markets all turned negative, with the Dow Jones closing down over 1,800 points (7%) the S&P down 6% and the Nasdaq – which recently hit a record high – also losing 5%. In Europe all the markets closed down with the FTSE 100 in London losing 4%. In just 12 weeks more than 44 million claims have been made for benefits as people lost their jobs. Rehiring appears to have started. Last week the labor department said the unemployment rate had dipped in May to 13.3% from 14.7% in April – although officials said difficulty collecting data meant the figure was probably 3% higher. Last night the US passed another grim milestone as the number of confirmed cases of Covid-19 passed 2m in the US and more than 115,000 people have died. Yesterday Jerome Powell, chair of the Federal Reserve, said the coronavirus was the “biggest economic shock” in living memory and warned it would be a long road to recovery. The central bank expects unemployment to dip to 9.3% by the year end, a sharp fall but still nearly three times as high at the 3.5% recorded in February. Powell warned that while the trend was positive it would be “difficult for many people to find work” for “an extended period”. Last week was the second week in a row that unemployment claims were below 2m, a sign that layoffs are slowing from the peak of 6.6m in April. The numbers, however, remain historically high. In the last recession, the highest number of weekly unemployment claims peaked at 665,000 in March 2009, and the previous all-time mark was 695,000 in October 1982. “The downward trend is obviously good news, but in the context of an economy that is reopening it is extremely high, especially when viewed against previous recessions,” James Knightley, chief international economist at ING, wrote in a note to investors. Jobless claims are an application for unemployment benefits submitted to a state labor department. The weekly numbers are seen as a proxy for unemployment trends but not an entirely reliable one. Not every person who is laid off applies for benefits, and not every individual who applies will be counted as making a claim. On top of that states have struggled with the sheer volume of claims, leading to huge backlogs. The Department of Labor said the number of people actually receiving benefits (known as continuing claims) was 20.9 million for the week ending 30 May, a small decline from the week before. The numbers are also declining in part because of the paycheck protection program, part of a historic fiscal stimulus package worth nearly $3tn, that offers businesses loans that can be partially forgiven if used for employee salaries. “We are seeing the labor market high on PPP money,” said Sung Won Sohn, a business economics professor at Loyola Marymount University in Los Angeles. “Once it runs out we might see a significant increase in layoffs again.” Ashley Harris clocked off from her last shift as a cocktail server at Harrah’s Philadelphia Casino at 2am in mid-March. She had worked at the casino for 10 years and hopes to get rehired, but her most pressing concern is the imminent end of the federal government’s $600-a-week expanded unemployment insurance scheme and her health insurance. Harris said the end of the expanded benefits – currently set to expire at the end of July – will be devastating. “For them to just cut off the extra $600, which is helping, is going to affect me in more ways than I can ever imagine,” Harris said. “If I get sick, I won’t be able to pay bills.” Democrats are fighting for an extension to the $600 payments but face stiff opposition from Republicans who argue that it is a disincentive for people to return to work. The Senate majority leader, Mitch McConnell, has reportedly told House Republicans the money “will not be in the next bill”. Reuters contributed to this article