05/08/2020

The job market made history in April in the worst possible way

 

A historic 20.5 million people lost their jobs last month. The losses were incurred from the third week of March through the third week of April, given the measurement period is the week that contains the 12th of the month. As such, many more job losses have yet to be tallied and will be reflected in the May report. 
 
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%.
 
 
Important Disclosures:
Source: Economic News Release, U.S. Bureau of Labor Statistics, May 8, 2020.
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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.

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