HIGHLIGHTS OF THE WEEK
- The start of May ushered in a barrage of sour data reports. The list included a plunge in April vehicle sales and service-sector activity falling into deep contractionary territory as indicated by the ISM non-manufacturing index.
- The most-anticipated report of the week, the jobs report, showed that U.S. payrolls plunged by 20.5 million in April. The unemployment rate skyrocketed to 14.7%. This double-digit rate still undercounts some the pandemic’s impact on the labor market, given a surge in the number of Americans not counted in the labor force who currently want a job.
- In a sign that there are some vague lights at the end of the tunnel, initial jobless claims continued to trend down, coming in at 3.2 million last week – about half their late-March peak.
Pandemic Wipes Out Nearly All Job Gains Of Past Decade
The start of May ushered in a barrage of bitter news on the data front, with the economic fallout from COVID-19 clearly on display this week. The sour data buffet included a widening of the U.S. trade deficit in March as a decline in exports outweighed that in imports, plunging vehicle sales in April (-24.5% m/m) and the service sector falling into contractionary territory, as indicated by the April ISM non-manufacturing index (-10.7 points to 41.8).
Still, the most-anticipated report of the week, by far, was the jobs report. Like much of everything these days, the April collapse in payrolls marks a new record. The U.S. economy shed a massive 20.5 million jobs last month, as COVID-19 led many businesses to close and lay off staff. Job losses were widespread on a sectoral basis. Unsurprisingly, the consumer-driven leisure and hospitality sector led the decline (-7.7 million or -47% m/m). Together with a downwardly revised March print (-870k), about 97% of all job gains made in the aftermath of the Great Recession have already been wiped out, with payrolls now back to their early-2011 level (Chart 1).
Total employment in the household survey, meanwhile, fell by 22.4 million in April. But, the size of the labor force also pulled back by 6.4 million, as the participation rate plunged 2.5 percentage points to 60.2% – the lowest level since 1973. Putting the pieces together, the number of jobless Americans rose by 15.9 million, while the unemployment rate skyrocketed to 14.7%, blowing past the 10.8% post-WWII record set in 1982. Despite the sharp departure from a jobless rate that was near the lowest level in half a century just recently, the double-digit unemployment rate still undercounts some of the pandemic’s impact on the labor market. For instance, the number of Americans not counted in the labor force who currently want a job nearly doubled to 9.9 million in April. If these people were counted as unemployed the unemployment rate would have topped 20%.
Despite all the record-setting negative data, there appear to be some vague lights at the end of the tunnel. Initial jobless claims, while still elevated, have been trending down, coming in at 3.2 million last week – about half their late-March peak (Chart 2). Some states have already eased restrictions in recent weeks and more are set to follow. As more regional economies reopen, the pressures should ease further. Since the majority of the unemployed are reported to be on temporary layoff, businesses may have an easier time restarting operations.
Still, the initial march toward normal will not be a speedy process. On the consumption side for instance, recent evidence suggests that even if businesses reopen, consumers may not feel safe to return to their old spending habits. At the same time, the hit to employment and income will linger, so a tighter grip on the purse strings is likely. In addition, speedy re-openings are also a bit of a double-edged sword, since they increase the risk of a rise in infections. All in all, the economic narrative is likely to remain ugly in the near-term. While there’s reason to be optimistic about a gradual turnaround, the way forward hinges on the path of the virus..
Admir Kolaj, Economist | 416-944-6318
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