Will April showers bring May flowers? Global financial markets are hoping that the adage rings true and that the worst is behind us. All eyes were focused on last month’s job situation, and there was a sense of relief that the report was not as terrible, rotten, and no good as everyone anticipated. The world’s largest economy is either bracing for the eye of the storm or witnessing the Category 5 hurricane diminish into a Category 3.
Black April
According to the Bureau of Labor Statistics (BLS), 20.5 million jobs were lost in April, and the unemployment rate surged to 14.7%. This is the worst labor report in the history of the government’s series, and national employment is now at its lowest level since February 2011.
The market had anticipated 22 million lost jobs and a jobless rate of 16%. In March, the U.S. economy shed 701,000 positions and the unemployment number shot up to 4.4%. The March jobs report was revised down by 169,000 to -870,000, while the February total non-farm payroll employment was adjusted down by 45,000 to +230,000.
Average hourly earnings rose 4.7%, average weekly hours were unchanged at 34.2 hours, and the labor force participation rate plunged to 60.1%. The employment declines were felt across the entire economy: leisure and hospitality (-7.7 million), manufacturing (-1.33 million), arts and entertainment (-1.3 million), government (-980,000), accommodations (-839,000).
Liberty Nation recently reported that the number of people who have applied for unemployment benefits had reached nearly 34 million in just seven weeks.
At first glance, it looks like the job-loss trend appears to have peaked, but not everyone is convinced. So, have we seen the worst? Is this an accurate estimate of the morose labor situation in America today?
The Worst Is Yet to Come?
Mark Zandi, the chief economist at Moody’s Analytics, thinks that job cuts may not have reached an apex, and it may not happen for another couple of weeks. He told CNBC before the April jobs numbers:
“So far, most of the damage to the economy has been the business shut down, the supply side ... As business reopens it’s going to be a demand-side story. The lost jobs, the lost wages, the lost wealth that will cut into spending, consumer spending.
There’s going to be a lot of business failures and bankruptcies. You can already see it. They’re going to be in such a weakened state they aren’t rehiring the people they had before.”
Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, believes the monthly employment report does not provide the most accurate portrait of job losses amid the COVID-19 pandemic. Speaking in an interview with NBC’s Today Show, Kashkari thinks the real figure may be as high as 24%, which would be comparable to the Great Depression. The Fed official is optimistic that the U.S. can avoid a similar situation, alluding to the central bank’s unprecedented monetary expansion. However, he does believe an economic recovery would be “gradual” until a vaccine or some type of treatment is developed that would successfully restart the economy.
The consensus is comparable to Bette Davis’ iconic line from All About Eve: “Fasten your seatbelts. It’s going to be a bumpy night.”
Measuring Unemployment
Kashkari’s statement about the real jobless rate starts an interesting conversation about how the federal government reports unemployment in the United States. The most common method is the U-3 rate, which measures the number of people who are out of work but still searching for employment. The other calculation is the U-6 rate that was abandoned in 1994. This includes permanently unemployed, underemployed, discouraged, involuntary part-time work, marginally affected folks, and people who have decided to go into early retirement.
Politicians typically prefer to utilize the U-3 measurement since it can paint a rosier picture. But if you really wanted to attain a better understanding of the labor market and what it means to be unemployed, then the U-6 rate is much more suitable and accurate.
For example, the March U-3 unemployment figure was 4.4%, but the U-6 rate was just under 9%.
What’s Next?
Billionaire investor Warren Buffett is optimistic that the U.S. will emerge from the pandemiconomy. From the dynamism of the economy to the Federal Reserve’s aggressive interventions, he is confident that the nation will recover from the Coronapocalypse. Is he a senile old man, or is he that bullish on America? Buffett recently made an interesting point that if anyone could choose where and when to live, they would inevitably pick the U.S. in 2020. Despite all the doom and gloom that has engulfed the Land of the Free, Buffett is correct. Since its birth, the U.S. has overcome wars and pandemics, recessions and depressions, Republicans and Democrats. Why would it not persevere again?
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Read more from Andrew Moran.
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