May 15, 2020
By Matt Kelley
Portfolio Strategy Manager, ESL Federal Credit Union
The U.S. Bureau of Labor Statistics has released an official unemployment report for April, with nonfarm payroll employment falling by 20.5 million and the unemployment rate rising to 14.7%. This was the worst monthly job report, ever.
Headline aside, there were a number of important details in the report. The number of unemployed persons who reported being on temporary layoff was 18.1 million, this number increased ten-fold in April. The question here is: how temporary?
With some states and counties gearing up to reopen, a quick return to the workforce could be what the market is anticipating. If these layoffs were to become permanent, it would signal a slower recovery. The largest decline in the jobs report was in leisure and hospitality, with employment dropping by 7.7 million, or 47%. Almost 75% of this occurred in food services and drinking places (i.e. places that serve alcoholic beverages, including bars, taverns, pubs, cocktail lounges, and nightclubs).
Understanding the Full Picture
Average hourly wages increased in April; however, this is mainly because many low wage jobs have been lost and should not be viewed as a positive. Importantly, there were 10.9 million working part-time for economic reasons; this number doubled in April. Most often, these are individuals that would prefer full-time work, but have had hours reduced or cannot find full-time employment. Because these individuals are employed, these workers are not factored into the unemployment rate, but an increase in part-time workers with preference for full-time work does have a negative effect on consumer demand. Because this number doubled over the last month, it is estimated about five million jobs have seen a reduction in hours due to the pandemic and mandated shutdowns.
The number of people not in the labor force, who currently want a job, was reported at 9.9 million, up 100% since the previous period. These individuals have not actively looked for a job in the last four weeks, and as a result, are not counted as part of the labor force or the unemployment rate. This signals roughly five million individuals left the labor force in April, most likely due to mandated shutdowns.
Pace of Unemployment Change
The speed and depth of this recession is unprecedented compared to all post-WWII recessions from an unemployment standpoint. During the Great Depression the unemployment rate did not reach 15% until 1931, eventually maxing out at 25% in 1933. While the U.S. has not yet reached the depths of the Great Depression, the speed is unmatched.
The numbers in the report were hardly a surprise given the amount of unemployment claims of 33 million since the start of the shutdowns in mid-March. The market is also shrugging it off, with the S&P 500 up more than 1%, and US small caps (reflected by the Russell 2000 index) up more than 3%, as of writing.
There were another three million in unemployment claims this week, with continuing claims rising to 22.8 million, indicating the unemployment rate is still increasing through the first weeks in May.
https://www.bls.gov/news.release/empsit.nr0.htm
https://www.dol.gov/ui/data.pdf
Returns from www.koyfin.com
Matt Kelley is a Portfolio Strategy Manager with ESL Federal Credit Union. In his role, Matt oversees the portfolio strategy team at ESL and is responsible for the investment philosophy, approach, and overall performance of internal and external investment portfolios for ESL.
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