Dear readers,
Here’s a meaty analysis of the Friday employment report. Please note the link will take you to a $27 a month trial. After you read this report, you may find it worthwhile. Please note: I’m a paying subscriber. Enjoy.
-David
COMMENTS ON APRIL JOB LOSSES
TLR Analytics
An appalling employment report, reflecting massive dislocation and misery. An appalling employment report, reflecting massive dislocation and misery. And the real unemployment rate is actually almost 20%, 5 points higher than reported (see below for details).
• Employers axed 20.5 million jobs in April, making for a decline of 12.9% from a year earlier. That annual rate is a record by a wide margin. The previous record was -7.6% in September 1945, during the postwar demobilization. At 131.1 million, total employment is back to where it was in February 2011, which was itself back to March 2004 levels, thanks to job losses in the Great Recession (a name that might have to be retired) and its aftermath. And that March 2004 level was the same as February 2000’s, because of the 2001 recession and the jobless recovery that followed it. So, employment now is the same as it was 20 years ago even though the civilian noninstitutional population is up 48.3 million, or 23%.
• Almost every sector and subsector lost jobs, and lots of them. Mining and logging lost 50,000; construction, 975,000; manufacturing 1.3 million; wholesale trade, 363,000; retail, 2.1 million (with the notable exception of “general merchandise, including warehouse clubs and supercenters”); transportation and warehousing, 584,000 (though, with all that online shopping, couriers and messengers were up 2,000); information, 254,000; finance, 262,000; professional and business services, 2.1 million; education and health, 2.5 million (including 1.4 million in health care, a bizarre development during a massive health crisis); leisure and hospitality, 7.7 million; and other services, 1.3 million.
• Government was off 980,000, all of it state (-180,000) and local (-801,000). It's distressing that at a time when people need public services, they’re being radically shrunk, and a sector that is supposed to act as an automatic stabilizer is acting instead as a downward accelerant. During the worst phases of the Great Recession, state and local government employment declined at an annual rate of around 1.5%; April’s level was off 4.5% from a year earlier. Since February, local government fell by 5.5%, state education by 8.8%, and local ed by 5.9%. Local government employment is a central support in rural economies, many of them already weak, and currently getting hit hardest by the pandemic.
• All four diffusion indexes made record lows, with the one-month measure at 4.8, and the three-month at 6.0. You have to look at some of these numbers two or three times to believe them.
• Technical notes Because “business births and deaths” will not offset in the current period, BLS included recent data in their birth/death model instead of the usual seven-month lag. Without this adjustment the model would have added 250,000 jobs to the NSA total. Instead it subtracted 800,000 jobs. And, as they did last month, they turned off the outlier offset to let the data stand. Also, data collection was unhampered by the crisis. The data collection rate for April was 75%, unchanged from the twelve months into February, and higher than March’s 66% and last April’s 72%.
• In the turmoil, the workweek rose 0.1 to 34.2, as a 2.1 hour decline in manufacturing was offset by a 0.5 hour rise in services. Aggregate hours worked in the private sector were off by 14.9%, with little differences between goods and services. That broke the previous record of a 1.3% decline.
• Average hourly earnings rose an eye-popping 4.6%—for the month, not the year, which was up 7.9%. Clearly the job losses are concentrated among lower-paid workers, pushing up the average. That mix effect is visible in two classic low-wage sectors: leisure and hospitality, up 6.8% in April, and retail, up 4.4%. By contrast, high-wage sectors like information and finance had increases under 2%—still high by historical standards, but less dramatically so, presumably because so many in those sectors are working from home.
• Household employment measures were grim, off 22.4 million overall, or 27.0 million when adjusted to match the payroll concept. The employment/population ratio cratered, falling from 60.0% in March to 51.3% in April, an all-time low. In the 1950s, before the mass entry of women into the labor force, it occasionally got as low as 55%. Its all-time high was 64.7% in April 2000. If people were employed at that rate now, there’d be almost 35 million more working.
• Unemployment soared, the rate rising more than 10 points from 4.4% to 14.7%. But that rise was partly masked by massive labor force withdrawal, as the participation rate fell from 62.7% to 60.2%. Had all the labor force dropouts been counted as unemployed, the jobless rate would have been over 4 points higher, or 18.9%. Also, in the March release, the BLS “text boxed” that although they requested people to report themselves on temp layoff they, apparently, instead checked “absent from work.” Had they reported themselves as requested the rate would have been 1 point higher. The confusion continues, and this month the rate would have been 5 points higher, 19.7%. The broad U-6 rate rose from 8.7% to 22.8%, shattering its previous record of 17.2%, set in April 2010. The share of the employed working part-time for economic reasons more than doubled, from 3.7% to 8.2%.
• Most of the increase in unemployment came from the freshly jobless, with two-thirds the increase coming from those unemployed less than 5 weeks. But a third was accounted for by those unemployed from 5 to 14 weeks, since problems first started in March. That influx at the short end took the mean duration of unemployment from 17.1 weeks in March to 6.1 in April, and the median from 7.0 to 2.0. Both mean and median are all-time lows.
• Job flows numbers were just as bad as you’d expect, with 11.2% of the March employed becoming unemployed in April (up from 1.7% in February–March), and another 6.1% dropping out of the labor force (up from 3.7%). Also, 35.7% of the March unemployed dropped out of the labor force in April, up from 25.3%
• If you’re desperate to find a cheering note buried amidst all the red ink, almost all the unemployed report themselves on temporary layoff rather than permanent job losers. Similarly, a Washington Post–Ipsos poll reports that 58% of laid-off workers think it’s “very likely” they’ll get their old jobs back, and another 19% say it’s “somewhat likely.” One hopes this is based on sound reasoning and not wishful thinking; one wonders how many of their employers will be able to survive months of zero revenues.
As dire as these numbers are, we hope no one draws the conclusion that getting people back to work ASAP is a more urgent need than keeping people from getting sick. We have to think of employment loss and GDP declines as side-effects of the treatment of disease and not as avoidable signs of over-reaction. A poll just out from Gallup finds broad support for this point of view. Quoting the release: “Gallup's Coronavirus tracking poll finds the vast majority of Americans either very (57%) or moderately confident (30%) that social distancing saves lives. A relatively small minority reported skepticism -- 12% are ‘not at all’ or ‘not too confident.’” There are, sadly, gaps by party affiliation, though 77% of Republicans fall into the two “confident” subcategories (compared to 98% of Democrats and 84% of Independents). We do, of course, have to get back to work, but that project must be thought through and carried out very carefully.
—Philippa Dunne & Doug Henwood
Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.
Sign up for our FREE Cumberland Market Commentaries
Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
