Employment Plunges into Depression Territory

Payroll employment plummeted by 20.5 million jobs in April, more than double the 8.8 million jobs lost during the Great Recession in 2008-09. Job losses for March were revised up from 701,000 to 870,000. Losses were greatest in leisure and hospitality, retail and health care. The blow to health care has been stunning amidst a health crisis. Doctor and dental offices were shut down during the month, while elective surgeries were canceled. That dealt a particularly hard blow to hospitals, which rely on elective surgeries to offset losses in other care that they provide.

No category of workers was spared a drop in employment. Losses in the government sector also mounted as schools, courts and government offices were shuttered. Education was hit especially hard when schools were closed, accounting for nearly two-thirds of the 980,000 in losses. The losses were gut-wrenching and will leave a scar on our economy for some time to come.

The response for the establishment survey was 74.9%, an improvement over the previous month, and close to the levels we saw prior to the crisis. The Bureau of Labor Statistics (BLS) made an adjustment to the birth and death rate of firms to come closer to estimating losses in the small business sector amidst COVID-19 shutdowns. The data appear to represent an undercount given the sheer volume of unemployment claims we saw during the five-week period covered by the April survey. Initial unemployment claims topped 26 million during the survey period; millions reported they were unable to complete those applications.

Average hourly earnings surged by $1.34 to $30.01 per hour. That entirely reflects the composition of job losses, which was much larger for low-wage workers. Average hours worked actually ticked up a bit, despite a record surge in the number of workers having to scale back their hours in the household survey.

The unemployment rate jumped to 14.7%, the highest rate since the Great Depression. The response rate for the household survey fell to 70%, 13 percentage points below the pre-crisis average. The number of workers saying they were absent from work instead of unemployed jumped again in April. The unemployment rate for those without a high school degree topped 20%. The BLS noted that if those workers had been classified correctly, the unemployment rate would have been nearly 5% higher than reported. That suggests an underlying unemployment rate of close to 20%.

The labor force participation rate fell to 60.2%, its lowest level since January 1973 before women entered the labor force en masse. Losses were a little higher among women than men; women were the primary drivers of an increase in labor force participation since 2015. The losses were largest among minorities - Hispanics and blacks. Everything from school closures and a need to care for children now at home to an inability to look for a job in an economy that is literally shut down contributed to those losses. If you didn’t look for a job over the last month, then you were classified as out of the labor force instead of “unemployed.”

There was an unusual share of workers, 78.3%, who said they were temporarily laid off. That has given many hope that those workers will be recalled. The problem is we are reopening into a world where contagion is still an issue. Many companies are opting to work from home until the fall and have canceled in-person meetings at least until fall. That means that many of the workers who are on temporary layoff will end up on permanent layoffs. Many restaurants can’t reopen to levels that will cover overhead costs let alone waitstaff.

The small business Payroll Protection Plan (PPP) loans/grants will bolster rehiring for their eight-week duration; they require employers to rehire back to February levels, immediately. That will help payrolls in May and June, but could set the stage for another round of layoffs in July, just as expanded unemployment benefits are expiring. This is in addition to what are expected to be draconian cuts in the budgets of state and local governments. Essential workers including first responders are expected to be hit if the federal government doesn’t approve transfers to the states, ASAP. We also will need funding for SNAP (food stamps) to feed the rising share of households who can no longer afford to feed their children. Funding for SNAP was not included in the first CARES Act, despite food lines that stretch for miles.

Bottom Line
The economy was shut down much more rapidly than it can reopen in a world where the risk of contagion is still extremely high and social distancing will be required. Many companies that reopen will be operating at a fraction of their previous capacity, while others fail entirely. The risk of persistent, instead of temporary, unemployment is high. There are no “Field of Dreams” moments in a COVID-tainted world. Just because we build it or reopen it does not mean they will come.

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