While the employment report showed record job losses and a spike in unemployment, economists pointed to some positives.
Nonfarm payrolls plunged by 20.5 million in April, as the unemployment rate surged to 14.7%, the Labor Department reported Friday.
The declines were seen across all major industry sectors as the coronavirus pandemic and efforts to stop it led to businesses closing, with those working in leisure and hospitality hit especially hard, Labor said.
As staggering as those numbers are, economists polled by IFR Markets, and many others, expected worse: 21 million jobs lost and 16% unemployment..
“The mind boggling loss of jobs last month was not caused by an economy out over its skis in need of a correction, but is a measure of the country’s resolve to meaningfully damage the rapid spread of COVID-19,”said Bryce Doty, senior vice president and senior portfolio manager at Sit Fixed Income Advisors, LLC. “More job losses is more lives saved. Losing 20 million plus million jobs in a month is a terrible hit to our economy. But the only lasting positive impact on our future economic well-being and financial markets is hope for our physical well-being and safety from a deadly virus.”
While the data are “sobering," Doty said, the employment report "likely marks the bottom of the economic contraction with hope for a better remainder of the year.”
Others agreed, if this is not the low point, it is close to it. “The joblessness rate is certain to be higher next month, but soon afterward it will steadily fall," according to Lawrence Yun, chief economist for the National Association of Realtors. "How fast and for how long will be determined by the containment of the virus. Consider that the jobless rate shot up from 5% to 15% in New Orleans following Hurricane Katrina. However, it soon fell to 5% within a few months of reopening the city and from massive disaster relief funding.”
While the situations may not be fully comparable since there was no fear attached to the post-hurricane recovery, Yun noted, the massive pandemic relief is providing support to cover lost income and "savings have doubled during the pandemic," so consumers could be spending very soon once the all clear is given.
Another reason for optimism, according to Joel Kan, vice president of economic and industry forecasting for the Mortgage Bankers Association, “Is that 18.1 million of the 23 million unemployed were classified as temporary layoffs, which indicates these workers expect to return to work.” But, he added, “Overall, the numbers were still bad. The unemployment rate leapt to 14.7 percent — the largest monthly jump and the highest rate since the survey’s beginning in 1948. There was also a record fall in the labor force participation rate to the lowest since 1973, as workers dropped out of the workforce and stopped looking for work.”
But the numbers may not tell the full story, said Christian Scherrmann, U.S. economist at DWS Group. "Again, as it has been the case in the March report, the special circumstances of the pandemic most likely led to measurement errors.” While those temporarily unemployed are usually included in the numbers, in the latest reports, a lot of those people most likely have been classified as missing work because of "other reasons."
“The news release suggests that if those would have been included, the unemployment rate might be close to 20%," he said. "A jump of average hourly earnings to 4.7% month-over-month from 0.5% is in fact a less cheerful sign as well. It indicates that primarily people in low-wage jobs have lost their positions. And while unemployment increased on a broad basis across all sectors, people working in leisure & hospitality have been hit especially hard — employment there dropped by 47% or 7.7 million. Looking through the already devastating headline, the details truly reveal the real damage the pandemic has done to the economy.”
Brian Coulton, chief economist at Fitch Ratings, said, “The fact that these numbers were broadly in line with our expectations doesn’t obscure the fact this is little short of a labor market tragedy.” And if 6.5 million hadn't left the labor force in the month the number of unemployed would have been higher.
“But the 78% share of unemployed classified as ‘temporarily laid off’ at least gives some grounds for hope that a lot of jobs will come back," he said, "provided the lockdown does not last too long.”
