EconoFACTS

May 08, 2020 | 09:07

U.S. Nonfarm Payrolls (Apr. 2020) — The Horror!

Economist

Director and Senior Economist
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Director and Senior Economist
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

The jobs report from hell is here--one never seen before and unlikely to be seen again barring another pandemic or meteor hitting the earth. The damage: 20.5 million Americans fell off payrolls in April, more than twice as many as in the entire Great Recession. The employment rate sank by nearly 9 ppts to a record low 51.3%. Over one-third of the job losses were in the leisure and hospitality sector (-7.7 million), but no sector was left unscathed. Retail shed 2.1 million positions, despite increased hiring at some of the big names that are doing bang-up online business. Manufacturing lost 1.3 million jobs, construction was down 1 million and even government shed nearly a million workers. There were 18.1 million reported temporary layoffs, so most of the total. However, there were also 2.0 million reported permanent job losses, an increase of 0.54 million from March. While the level of permanent layoffs is less than a third of the peak reached in the Great Recession, it's a worrisome indication of the many businesses that won't survive this crisis.

The household survey reported 22.4 million job losses, and the number of unemployed spiked by nearly 16 million to 23.1 million. Only a 6.4 million drop in the labour force prevented the unemployment rate from rising more, though it still hit a post-war high of 14.7%. The more inclusive U6 rate that accounts for involuntary part-time workers and discouraged workers hit 22.8% versus 8.7% in March. The participation rate plunged 2.5 ppts to 60.2%. The jobless rate in leisure and hospitality jumped to an eye-watering 39.3%, while that in retail/wholesale hit 17.1%.

Aggregate weekly work hours dove a record 14.9% in the month and 15.0% y/y. They are down 49% annualized from the first quarter. Assuming some bounce in work hours later this quarter, but also dismal productivity amid social distancing requirements, work hours are generally consistent with our view of a 40% annualized contraction in Q2 real GDP. But it could be worse if the reopenings don't go smoothly in coming weeks.

The next jobs report for May could see further losses, albeit likely a fraction of those reported in April, given that it will largely capture just the early stage of reopenings.

The only relative good news in all this is that the government income-support measures (supplementary UI benefits and $1,200 payments to most adults) are providing a cushion for those who are laid off, and will help them get back on their feet when the economy recovers.

The immediate cure for this self-induced recession is not low interest rates or fiscal support but the reopening of the economy, which is currently taking effect in gradual fashion in most states now. Today's report doesn't answer the nagging question of how many businesses will survive the pandemic (even after reopening) and how many workers will be needed when the economy restarts. The answers will emerge in the months ahead and will define the speed of the recovery. Unfortunately, even with an expected strong rebound in GDP growth in the third quarter, the unemployment rate could still be sitting around 7% at the end of the year, double the half-century low of 3.5% achieved before the pandemic.

Table 1 - United States — Employment

(change in thousands)

Source: BMO Economics, Haver Analytics