May 8, 2020
Executive Summary: The historic April job losses of 20.5 million and spike in the unemployment rate up to 14.7% were painful, mirroring the lockdown of the US economy. A silver lining is that almost 90% of the losses were categorized as temporary layoffs and, on an industry level, nearly half were leisure & hospitality and retailers. This suggests that the bulk of these jobs could be re-engaged rather quickly as lockdowns are lifted and activities resume, reinforcing our view of a U-shaped economic recovery.

Longer-Term Trend

US nonfarm payrolls declined by 20.5 million in April, the largest monthly decrease ever. That smashes the previous record of 1.77 million jobs in September 1945. (Monthly data did not begin until the end of the Great Depression era in 1939, although we doubt a single month back then was ever as bad as April 2020.)

Importantly though, the number of unemployed persons reported as a temporary layoff was 18.1 million in April, while those reported as a permanent layoff increased by 544,000 to 2.0 million. That equals 87.7% temporarily furloughed due to the lockdowns.

Downward revisions to the prior two months sliced off 214,000 jobs from the previously reported totals. The February tally was revised down by 45,000 to 230,000 from 275,000, while the March figure was lowered to -870,000 from -701,000.

Labor Force and Unemployment

The unemployment rate soared, jumping by 10.3 percentage points to 14.7%, the largest one-month increase on record. The all-in unemployment rate (U-6) also soared, up 14.1 percentage points to 22.8% in April. The labor force lost 6.43 million workers, pushing the total workforce down to 156.5 million. The labor force participation rate slipped to 60.2% in April.

Industry Trends

Service-providing industries lost 17.2 million workers, or about 84% of the total job losses in April, while goods producers lost 2.36 million workers. The losses were widespread, but uneven as just one goods producing industry— manufacturing (1.33 million)—lost more than 1 million workers.
Within government, 645,000, or 65.8% of the jobs cut, were educational positions, nearly three-quarters of which were on the local level. Federal payrolls actually grew by 1,000.

Similar to March, the leisure & hospitality segment was battered, losing 7.6 million workers. Restaurants and bars sliced 5.5 million, or more than 26% of all jobs lost in April. Of the 21.4 million jobs lost in March and April, almost 40% were in the leisure and hospitality segment, mostly at restaurants.

The Shape of the Recovery and Reopening

We anticipated a U-shaped economic recovery. It is becoming very obvious to us, as we review incoming economic data, that the US will NOT have a V-shaped economic recovery, but it is also NOT heading for an L- or W-Shaped recovery. This is particularly clear as we see data showing the early characteristics of a trough. For instance, new and used car sales bottomed in the last week of March/first week of April, respectively; both were down roughly 50% year-over-year at their lowest point and were down about 35% in the latest week. That coincides with our notion that initial jobless claims peaked in the same timeframe; initial claims were up to 6.87 million in the last week of March and have retreated more than 50% to 3.17 million last week. Lastly, real-time activity data—such as Apple mobility trends or TSA checkpoint passenger numbers have more than doubled the past three weeks (though still down 85%)—indicate that the US is gradually reopening.

Our near-term outlook remains mixed, though we are optimistic in the longer term due to the services component of the US economy. On one hand, the unstoppable typical recessionary forces—highlighted by layoffs and restructurings—have begun to damage the US economy and will not easily be undone. Like most recessionary recoveries, the coming recovery will be measured in quarters and years, especially on the employment front. The devastation is brutal to witness.

On the other hand, the bulk of the losses have been temporary furloughs and largely confined within services. Nearly half of the March and April job losses were leisure & hospitality and retailers. Similarly, another sizable chunk was educational, which could be rehired as schools reopen (in some form). Conversely, it appears that many other industries are holding onto their employees. These trends suggest that economic activity can restart as the virus path progresses. Accordingly, most of these workers could return to work rather quickly as lockdowns are lifted and activities resume.

Additionally, the massive size of assistance programs by the federal government, with a large income replacement component for individuals and businesses, and the Federal Reserve’s efforts should blunt some of the downside and hasten the eventual recovery.

Our view is that reopening in the US is going to move in fits and starts, similar to global experiences such as China, Taiwan and South Korea. There are also stark differences between states, including population density, use of public transportation, etc., which have dramatically impacted states’ cases and mortality rates. We expect subsequent waves, albeit smaller than the first, as has been the case globally. That said, improved and widespread testing along with contact tracing should help mitigate the size of subsequent waves. Additionally, continued social distancing and diligent public and personal hygiene measures should help reduce the size. While there are several treatment drugs and vaccines in early-stage clinical trials, it is too early to factor those in; of course, a medical breakthrough would accelerate re-openings.

Bottom Line

The historic April job losses were painful, mirroring an unprecedented lockdown of the US economy. A silver lining is that almost 90% were categorized as on temporary layoff and, on an industry level, nearly half were leisure & hospitality and retailers. These suggest that the bulk of these jobs could be re-engaged rather quickly as lockdowns are lifted and activities resume, reinforcing our view of a U-shaped economic recovery.

Lastly, as we mentioned last month: while this report enumerates the economic damage, it does not touch the personal devastation. Please reach out to your friends, colleagues and loved ones, offering comfort, compassion and support. It could be sharing a story, an experience, or a joke and a laugh. It is in times of crisis that we show our true selves.

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CN2020-1060 EXP12-2020