Employment Plunged in March

Payroll employment fell 701,000; over half of those losses in leisure and hospitality, which was hardest hit by conference cancellations by businesses in late February. This is the largest drop in a month for the beginning of a recession in history; the April report will make those losses look small. The data for January and February were revised down by 57,000. The hits were broad-based and will get worse across sectors in April. Even health care was hit as small physician and dental offices were closed. New York has reported some 76,000 volunteers to help with the crisis; a portion of those volunteers are likely coming from those in health care whose offices have closed or scaled back their hours.

Retail lost another 46,200 workers, which brings retail losses over the last year to 19,000, a drop in the bucket of what we will see in April. Many large retailers have already announced furloughs for hundreds of thousands of retail workers since Monday. More were laid off prior to that but not included in the tally of payroll employment for March, because they occurred after the survey week.

Manufacturing was not nearly as hard hit as other sectors, but that will change. Workers started to demand plants be closed due to risks of the virus spreading. Nondurable goods production, which includes household essentials, will be one of the few areas spared.

Average hourly earnings jumped 0.4% in March from February, which marks a 3.1% increase from a year ago. Average hourly earnings tend to rise at the onset of a recession as lower-paid hourly workers are hit harder than salaried workers during the initial stages of the recession. Average weekly hours worked dropped from 34.4 to 34.2. Average weekly earnings fell 0.2% from a month ago and are up 2.2% from a year ago, a sharp deceleration from the 3% we saw in February. Brace for an unprecedented decline in April. We are expecting payrolls to contract by well over 15 million in April.

Separately, the unemployment rate which is tracked with the survey of households moved up to 4.4% from a low of 3.5% for the expansion. That is well into recession territory. Moreover, a large number of workers were misclassified as absent from work instead of temporarily unemployed. The Bureau of Labor Statistics estimates that the unemployment rate would have risen another 1% or to 5.4% if those workers had been properly classified. The participation rate cratered, which also made the deterioration in the unemployment rate look better than expected.

The drop in the civilian labor force was a staggering 1.63 million. People at home caring for the ill and children cannot participate. Going forward, participation will also be hurt by the complete lack of jobs for workers to apply for.

The response rate was reported a month earlier than usual for both the establishment and the household surveys. Both response rates plummeted, underscoring how difficult it will be to get an accurate measure of the depth of the crisis going forward. The initial drop was due to fewer personal interviews and people filling at call centers. This was to keep those workers safe. Going forward, response rates could be further compromised by the shift to shelter in place, work at home and actual layoffs. It may be difficult to find the people who once filled out the surveys for large establishments. This tends to happen in a recession but the magnitude of difficulty will be significantly worse than anything we have ever seen. Surveys don’t get the same attention as cash flow when firms are hemorrhaging cash.

We also saw a 1.3 million jump in the number of workers forced to accept a reduction in hours and slip into part-time instead of full-time status. That marks a record deterioration in the status of workers moving from full to part-time. The overwhelming majority of those workers have already been pushed into unemployment since the survey for March was taken. The U-6 measure of unemployment, which includes those workers, jumped from 7.0% to 8.7% during the month, another record jump. Brace for a surge in the number of salaried workers also forced to scale back on their hours and salaries in the months to come.

Bottom Line
The drop in payrolls in March was unprecedented for the start of a recession and will get more than twenty times worse in April. We will easily lose more than twice as many jobs as we lost during the Great Recession during the first two months of this crisis alone. Unemployment will soar into the double digits, while participation plummets. There is no scale to measure the misery associated with COVID-19 on all fronts.

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