April Employment Report Comments
The job market made history in April in the worst possible way
The Unemployment Rate jumped to a record high of 14.7% in April, but even this does not fully reflect reality. The prior record high for this series dating back to its start in 1948 was 10.8%, as seen in December 1982.
Despite its record high, the reported rate under-counts the reality due to a technical issue in the way unemployment is measured. In conducting its Household survey, the Labor Department does not consider people as unemployed if they are not looking for work. If they are not working and not looking, they are not considered to be actively participating in the labor force – thus, they are not unemployed. The Labor Department said this morning that the April unemployment rate would have been almost 5 percentage points higher had it not been for this issue.
This aspect was clearly reflected in April’s Labor Force Participation Rate (LFPR), which declined sharply to 60.2%, from 62.7% in March and 63.4% in February. The methodology usually works fine and is a proper framework under normal circumstances. In the current situation, however, very few people are likely actively looking for work – especially since so many businesses are closed.
Average Hourly Earnings surged in April. Unfortunately, this is reflective of the fact that most of the recent job losses have affected those that can least afford it on the bottom end of the wage scale.
Looking ahead: May’s job losses should be notably smaller than today’s number, but horrific, nonetheless. Currently, we forecast the report for May to show another 10 million net job losses and an unemployment rate of 18.5%. May’s unemployment rate, however, should mercifully be the peak for this dreadful period. We believe we’ll see strong new hiring as economic activity slowly resumes and we should have the rate back down to a range of 10% to 12% by year’s end. It will likely take another year or more to get back in the full-employment range of about 5%.
Source: Economic News Release, U.S. Bureau of Labor Statistics, May 8, 2020.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Individual securities referenced are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell.
Labor Force Participation Rate is defined as the section of working population in the age group of 16-64 in the economy currently employed or seeking employment.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
Russell Price, CFA
- Chief Economist, Ameriprise Financial
- Chartered Financial Analyst; Degree in economics and MBA in finance
- Frequent contributor to the New York Times, Bloomberg and Reuters