Payroll employment is expected to plummet by another eight million jobs for May after contracting by a cumulative 21.4 million jobs in March and April. Our forecast shows private employment falling by another 7.4 million jobs, while the public sector likely shed about 600,000 more jobs during the month. Those public sector losses could accelerate quite dramatically over the summer if Congress can’t agree on transfers to the states.
We are expecting to see fairly large downward revisions to payroll losses in April, as many as three million more than initially reported. That would push the cumulative loss in jobs since the onset of the crisis in late February to more than 30 million jobs by mid-May.
High frequency data on job postings and job searches suggest some bottoming in the pace of job losses in late May when some states pushed to reopen. Riots and looting following protests over the George Floyd killing in Minneapolis could further delay reopenings. There is little doubt that small business and retail failures will be accelerated by the turmoil. Large stores with insurance will make repairs and reopen, while the smaller businesses holding on by a shoestring will close for good. That is in addition to the risk that even peaceful protests could trigger a surge in COVID-19 cases, which would extend social distancing even if part of the country does not engage in another round of lockdowns. The rioting could add to the fear many have about returning to public places. It is really hard to escape the devastation of this crisis. Many white-collar, wealthier households have escaped less affected, but we fear a second wave of white-collar layoffs and salary cuts as the economy struggles to reopen with the risk of contagion still high over the summer.
We expect to see average hourly earnings hold at the elevated $30.01 level in May as low-wage job losses continue to outpace the losses in high-wage jobs. This shift in the composition of job losses is masking the blow that white-collar workers are suffering in wage growth. Many have had to take wage cuts while their companies attempt to weather a cash crunch triggered by COVID-19. Watch for more high-wage layoffs during the summer as the economy struggles to reopen and recover amidst a high rate of contagion. Average hours worked for May is expected to hold at 34.2 in May, the same as in April.
The unemployment rate is expected to top 22% in May after hitting 14.7% in April. An unusually large number of workers reported that they were “absent from work” instead of “laid off” in March and April. Adjusting for those answers, the reported unemployment rate moved above 19% in April. The only thing holding the unemployment rate in check is the labor force participation rate, which fell to 60.2% in May, the lowest level since the early 1970s before women started entering the labor force en masse. We expect the participation rate to fall to 60% in May, the lowest since the late 1960s.
There are several reasons for the drop in labor force participation. Few can actually look for a job in an economy that is in lockdown; to be classified as “unemployed,” an individual must be looking for work according to the Bureau of Labor Statistics (BLS). Women have borne most of the burden of caring for children sent home from school in March. Indeed, one of the greatest hurdles to getting more people back to work over the summer and into the fall will be when/if primary schools reopen.
Other signs of stress will be the number of workers who have had their hours scaled back even if they were working for a salary and not hourly wages. This, coupled with a surge in the number of workers on the sidelines, will push the U-6 or stress measure of unemployment over 25% for May after hitting a record high of 22.8% in April. The U-6 includes workers who were forced to accept part-time over full-time work and workers who are marginally attached to the labor force; the classification dates back to the early 1990s.
Separately, we could see a drop in the percentage of the unemployed who believe their layoffs to be temporary. Firms that hoped to take temporary furloughs are now realizing that they cannot bring back all of their workers, given the weakness in the overall economy.
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