- Non-farm payrolls fell 701k positions in March, much worse than consensus expectations, as job losses due to the coronavirus pandemic started to mount. That result is close to the worse months for job losses during the global financial crisis.
- The unemployment rate jumped up to 4.4%, from 3.5% in February. That is the largest one-month increase since 1975. The household survey, which measures the unemployment rate, counted 1.4 million people who lost their jobs in March. The Bureau of Labor Statistics also cited that the bulk of the job losses were in temporary layoffs, which doubled in March to 1.8 million. Permanent job losses were up 177k.
- About two-thirds of March’s job losses were in leisure and hospitality (-459k), mainly at food services and drinking places (-417k). Notable declines also occurred at health care and social assistance (-61k), professional and business services (-52k), retail (-46k), construction (-29k), other services (-24k) and manufacturing (-18k). The decline in health care and social assistance may seem counterintuitive, but this was due to job losses at places like doctor’s and dentist’s private offices in addition to child care centers.
- One area where hiring rose was the federal government (+18k), reflecting the hiring of 17k workers for the Census. Hiring there has now been suspended until at least mid-April due to the coronavirus pandemic.
- Average hourly earnings rose 0.4% in March, and are now up 3.1% on a year-on-year basis. However, this result should be interpreted with caution as it likely was influences by the fact that the bulk of the job losses have occurred in lower wage sectors of the economy.
- In addition to the officially counted unemployed, the BLS noted a large increase in the number of people who were employed but absent from work for “other reasons” . Had they been counted as unemployed, the rate would have been “almost 1 percentage point higher”. While special instructions to interviewers asked that people who are away from work due to the coronavirus-related business closures to be counted as unemployed, it appears that many of them were not.
Key Implications
- March’s job losses were heavier than analysts were expecting, but not surprising given we know that 10 million Americans have file for unemployment insurance in the past three weeks (see commentary). The survey week for the household survey was March 8-14th, which fell before most of the coronavirus-related shutdowns. So unfortunately, April is likely to be a whole lot worse, and likely to set all-time records for job losses. It is highly likely the unemployment rate will top 10% and it could reach as high as 20%, with many non-essential sectors in the economy entirely shut down.
- Fortunately, Congress has acted relatively quickly to significantly expand unemployment benefits (see report). People who were previously ineligible – self-employed workers, independent contractors, and those with limited work history, will now be able to apply for benefits. Furthermore, claimants will receive an additional $600 per week for up to four months, and benefits are extended for an additional 13 weeks after state benefits end, through December 31, 2020. These income support measures should help prevent a temporary stoppage in income from turning into a deeper hit to household balance sheets, which would prolong the weakness in spending once the pandemic subsides.
- Get ready for most economic indicators to set records for declines in the second quarter. Never in the post-war data collection era has economic activity been halted so abruptly across such wide swaths of the economy. All told, growth in the second quarter is set of an eye-popping double digit decline (forecast update). The greatest uncertainty lies in how quickly the economy will return to normal, with much depending on how successfully the virus is contained. The government’s spending packages thus far will help with that, but more assistance will likely be required.
