The Wave Breaks

The United States labor market shed 20.5 million jobs in April and the unemployment rate spiked to 14.7 percent, reflecting the dramatic impact of the economic contraction related to the Coronavirus pandemic. The job market has now seen the largest single shock since the Great Depression.

A Sharp Drop
It is difficult to put the April job losses in historical perspective. The U.S. economy has never experienced anything like this. Before this report, the worst monthly job loss occurred in September 1945, when nearly 2 million people lost work during demobilization after World War II. But the jobs lost last month dwarf that amount. 

One of the most shocking aspects of the current downturn is the speed with which the economy has declined. Recessions usually occur over a period of months or years.  The current contraction has emerged over a period of weeks. And the magnitude of the losses is staggering. During the Great Recession, from 2008 to 2009 the U.S. economy lost a total of 8.7 million jobs. The single month job loss in April was more than twice that amount. 

Unemployment is also surging at historic levels, increasing from 4.4 percent in March to 14.7 percent in April. This is even more remarkable since just a few months ago the U.S. unemployment rate was at a 50-year low of 3.5 percent. The jobless rate in April was the highest it has been since the Great Depression, and it is likely understating the true rate of unemployment in America. The Labor Department survey was conducted during the middle of April and weekly jobless claims have continued to rise since then.  

Other labor market indicators showed similar signs of trouble. The underemployment rate, which includes discouraged workers and people not currently in the labor force but who want a job, increased from 8.7 percent in March to 22.8 percent in April. 

Labor force participation, which measures the share of the working-age population actively engaged in the job market, fell to the lowest level in a generation, from 62.7 percent in March to 60.2 percent in April. And the employment to total population ratio dropped 8.7 percent in April to 51.3 percent. This represents the largest single monthly drop and the lowest level on record since reporting began in 1948.

Jump in Wage Growth Reflects More Problems
Annual wage growth in April jumped 7.9 percent, compared to an increase of 3.1 percent in March. Normally, an increase in wages is a sign of a strengthening labor market, as workers can demand higher pay. However, the wage growth figures from April show that many of the layoffs are happening to lower wage workers, which is another troubling sign if current trends continue.

The jobs report reflected losses in all major industries last month. Employment in leisure and hospitality dropped by 7.7 million, an astounding 47 percent. Almost three-quarters of the decrease occurred in restaurants and bars (-5.5 million). Employment also fell in the arts, entertainment, and recreation industry (-1.3 million) and in the accommodation industry (-839,000).

Manufacturing employment declined by 1.3 million. About two-thirds of the decline was in durable goods which saw losses in motor vehicles and parts (-382,000) and in fabricated metal products (-109,000).

Employment in financial activities fell by 262,000 over the month, with the vast majority of the decline occurring in real estate and related industries (-222,000).

The government sector experienced the smallest month-to-month job loss, losing 4.1 percent of jobs month to month.

With such dire statistics, it’s hard to believe that only 3 months ago, the United States had an extremely strong economy. The labor market added 235,000 jobs in February, the unemployment rate stood at a 50-year low of 3.5 percent, and the labor force participation rate had reached its highest point since 2013. It’s hard to overstate how much of an unexpected and shocking economic event the coronavirus has been.

The question now is when the economy will bottom and how quickly it will recover.  Many state and local governments are in the process of reopening businesses and people are slowly starting to return to work. Ultimately, the speed of recovery for the economy will depend on the consumer. Once individuals feel confident to spend and re-engage in the market the economy will begin its climb back.

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The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

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