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Look behind at May 4, 2020 week: Devastating labor market data

A look behind at the May 4 week brings home the magnitude of displacements in the labor market and the uncertainties that face it. All the reports reflect job losses on a scale not previously seen and without a viable comparison in the various data series histories. Some hint at hopes that layoffs will be short-term once business starts to pick up again but with a streak of pragmatism that many businesses will face fundamental changes.

Nonfarm payrolls were down 20.5 million in April, the single largest one month change in the series history. Displacement of workers in lower paid jobs that predominate in industrial like leisure and hospitality actually forced average hourly earnings up 4.7% month-over-month and up 7.9% year-over-year which indicates that it is workers on the lower rungs of the earnings ladder who are suffering the most. The unemployment rate soared to 14.7%, the highest since the Great Depression. The U-6 unemployment rate jumped to 22.8% in April from 8.7% in March, consistent with much worse conditions for workers on the margins.

Given the size of the drop in private payrolls of 19.520 million in April in the government data, it was not materially different from the ADP National Employment Report and its fall of 20.236 million jobs. The ADP number showed that about 80% of the payroll losses were in service industries.

The Challenger report on layoff intentions in April also had a record month-to-month change with a total of 671,129 announced job cut plans after the 222,228 in March. The sense is that businesses are preparing for extended closures even as they hope that the economy will start to reopen sooner rather than later.

The pace of initial jobless claims has ebbed in recent weeks, but still massive numbers of applications are being filed. Since the first widespread closures of nonessential businesses in mid-March, new claims have added up to 30.739 million (unadjusted) through the May 2 data. Most of these are rolling over on to the rolls of continuing claims. The insured rate of unemployment hit a record of 15.1% (unadjusted) as of the April 25 week.

The NFIB Small Business Jobs Report for April indicated that hiring has fallen to a near stand-still and that job openings are contracting quickly along with compensation.

The ISM Non-Manufacturing Index for April fell sharply to 41.8 in April, falling below the threshold that signals recession for the broader economy. The 10.7 point decline was less than expected but entirely due to lengthening delivery times and not any strength in activity or orders.

Sales of new motor vehicles fell to a total of 8.6 million units (SAAR) in April, a low not seen since the 1970’s. Consumers are not buying cars or light trucks unless absolutely necessary, both out of an inability to shop in showrooms and in guarding household assets while the economic outlook is highly uncertain.

New orders for factory goods in March were down 14.7% for durables and 5.8% for nondurables for an overall decline of 10.3%. Transportation orders fell 41.3% and contributed much of the weakness in orders. Excluding transportation, orders were down 0.4%.

The Fed’s April Senior Loan Officer Opinion Survey reflected the increased risks of lending while at the same time demand for most types of business and consumer loans disappeared. The Fed continued to announce modifications to its lending facilities to better target them where needed, and to make temporary changes in regulation and supervision to accommodate the challenges faced by financial institutions during the COVID-19 pandemic. For a compilation of these actions, please see the Whetstone Analysis Reference LibraryWhetstone Analysis Reference Library.

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