What To Make Of The Historically Bad Jobs Report: 'Great Depression Levels Of Stress'

April brought the highest unemployment rate — and monthly rate increase — since the Great Depression. And the lowest labor force participation rate since 1973. And the lowest employment-to-population ratio since the U.S. began tracking seasonally adjusted data in 1948.

Basically, April 2019 was one of the worst months in the modern history of the U.S. economy, according to the Bureau of Labor Statistics. One economist said the numbers barely tell the story.

“What we know is that this report almost certainly understates the tragedy has befallen the American labor force,” RSM Chief Economist Joseph Brusuelas said in a statement, noting that the unemployment rate would have been nearly 5 percentage points higher if the full number of absent workers had been included in the count.

“The first cut at estimating the damage to the U.S. labor market understates the true shock that the public is absorbing.”

An Apolitical Issue

The breakdown of the report, which conveyed big losses in hospitality, food service, education and retail, testifies to the apolitical nature of the declines.

“The bulk of job losses fall in sectors which will continue to suffer low demand after shelter in place orders have been loosened,” Michael Hicks, director of Ball State’s Center for Business and Economic Research, said in a statement. “This strongly suggests that the disease, not government action, is the cause of economic distress.”

This implies a lack of control on the part of coordinating institutions, he said. 

“Regardless of state action to relax shelter in place rules, the economy will continue to experience Great Depression levels of stress until COVID-19 vaccinations or treatments are available.”

Brusuelas Projects Peak Of 40M Unemployed 

About 18 million of the 20.6 million unemployed workers reported temporary layoffs, which conveys hope of re-employment as the pandemic fades.

“With some 18 million Americans being on temporary layoff, it is reasonable to assume that a number of these posts, we don’t know how many, will be filled once stay-at-home restrictions are lifted,” Bankrate.com senior economic analyst Mark Hamrick said in a statement. “This will be among the key areas to watch for possible signs of improvement in the weeks and months to come.”

Still, Brusuelas expects the unemployment rate and the total number of unemployed workers to rise in the near-term.

“Based on our estimation of U.S. labor market dynamics, we expect the total number of unemployed to crest somewhere above 40 million, with 25% of that cohort facing permanent unemployment,” Brusuelas said.

A Sign Of Recovery?

The BLS explained April’s rise in hourly earnings as a factor of employee mix shift. The labor market lost more low-wage jobs than high-wage jobs, which lifted average earnings upward.

“Any claims that the increase in hourly wages is a sign of inflation or is proof that the economy is holding up well should be firmly set aside and targeted for the dustbin of history,” Brusuelas said.

A similar effect explains the rise in average hours worked. Brusuelas said he expects the metric to fall toward 30 hours in May and June, despite the April bump.

“Given the magnitude of the shock, that has affected the economy and labor market it is almost certain that hours worked will decline to the point where some will no longer qualify as a full-time worker and sustain health care benefits,” he wrote.

Onwards And Upwards

A sustained and targeted policy response may be required to relieve unemployment pressures. Brusuelas nodded to discussions of infrastructure spending, broadband internet investments, negative interest rates and yield curve controls.

“The idea of fiscal conservatism in an era of well above 20% unemployment and a structural break in the economy would appear to be somewhat out of touch and soon to be out of time,” he wrote.

At this point, the market looks at the path ahead optimistically, said Bankrate.com's Hamrick.

“The stock market is looking past these horrific numbers with the hope of recovery ahead,” he said. “That will require some best-case scenarios emerging including the discovery of an effective vaccine sooner rather than later to help us put this multifaceted disaster behind us.”