Total nonfarm employment in the United States plunged by 20.5 million in April according to the Bureau of Labor Statistics, marking by far the steepest one-month drop in jobs since the end of the Great Depression.
The stark jobs report is so far the harshest evidence of coronavirus’ far-reaching toll on both the labor market and the economy as a whole. The number of jobs lost in April, representing approximately 13.5% of all American jobs, was the most since the government began tracking the statistic in 1939. The rate of decline in payroll employment also marked an all-time high; the previous record for largest percentage decrease — 4.8% in September 1945 in the midst of post-war economic transition — seems almost paltry in comparison.
Both the speed and scale of job losses during the COVID-19 crisis have been unparalleled, with the pandemic essentially wiping out nearly a decade’s worth of employment gains in a single month. Consider, for example, that the economy shed 8.7 million jobs during the entire Great Recession.
“The extraordinary impact from COVID-19 social distancing measures and business closings is weighing on the job market in unprecedented ways,” said Joel Kan, associate vice president of economic and industry forecasting for the Mortgage Bankers Association. “April was the first full month of the impact … Essentially all sectors lost jobs over the month.
“Leisure and hospitality, the sector perhaps most impacted by closings and restricted operations, saw a 7.6 million job decrease; retail trade suffered 2 million in job losses. The construction sector lost 975,000 jobs – close to the 2009 annual total – which is a blow to the housing recovery and might impact future housing supply.”
The mass shedding of jobs led to a never-before-seen surge in the unemployment rate. That figure soared to 14.7% — highest since 1948, when the government began tracking the statistic monthly. The previous post-war peak was 10.8%, while the Great Recession’s high was 10% in late 2009.
“The unemployment rate would have been even higher if not for a large number of persons leaving the labor force,” said Doug Duncan, chief economist for Fannie Mae. Duncan’s point is evidenced by April’s monthly drop in the labor force participation rate of 2.5 percentage points, a record fall. The labor force participation rate ended the month at 60.2%, lowest since January 1973.
“Given that there are so few new jobs available at the moment, many unemployed workers are choosing not to search for work and instead are classified as not in the labor force,” Duncan said. “The U-6 rate, a broader measure of labor market slack that includes all persons marginally attached to the labor force, jumped from 8.7 to 22.8 percent, and the number of persons working part-time but who would prefer full-time employment doubled this month to 11 million, serving as further evidence of the decline in labor demand in the current crisis.”
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Even the seemingly bright spots in the report came with obvious and serious caveats. Average hourly earnings, for example, sprang forward 4.7% in April, though the report acknowledged that the increase “largely reflect[s] the substantial job loss among lower-paid workers.” Indeed, said Jay H. Bryson, acting chief economist at Wells Fargo, “this is hardly a sign of strength.”
Take the aforementioned April exodus of leisure and hospitality jobs, he said. The average hourly wage in that sector, Bryson noted, was just $16.86 in March, more than $10 an hour below the economy-wide average of $28.67.
“Because job losses in April fell disproportionally among low-wage workers, the average wage jumped,” Bryson explained. “If, as we expect, the unemployment rate remains elevated in coming months, then growth in hourly earnings should weaken considerably.”
Kan did find one positive takeaway from the report.
“One hint of optimism,” he said, “is that 18.1 million of the 23 million unemployed were classified as temporary layoffs, which indicates these workers expect to return to work.”
So what comes next? According to Bryson, more of the same in the following month, though likely at a lesser magnitude.
“Sadly, there will be more job losses reported when the May report is published next month,” he said, “because seven million additional individuals have subsequently filed for unemployment benefits (since the April employment survey).”
Some state governments relaxing their shutdown orders should, in theory, help the economy, though the effect of such early opening policies on the spread of the virus remains to be seen. Even with multiple states starting to ease off business restrictions, CNBC estimated that some 60% of the economy is still affected by shelter-at-home measures.
Lawrence Yun, chief economist of the National Association of Realtors, agreed that the unemployment rate is sure to be higher next month, but believes that “soon afterward, it will steadily fall.”
How fast and for how long, he said, will depend on how well COVID-19 is contained.
“Consider that the jobless rate shot up from 5% to 15% in New Orleans following Hurricane Katrina,” he said. “However, it soon fell to 5% within a few months of reopening the city and from massive disaster relief funding. Though not comparable because a flood is different from fear, the current massive pandemic relief is providing support to lost income. Savings have doubled during the pandemic and could turn into spending very soon.”
As for the housing market specifically, forbearance numbers are expected to keep mounting, though the growth rate of requests appears to be slowing.
“The early impact of this deterioration on the mortgage market has already been felt by rapidly increasing rates of loans in forbearance,” Kan said. “We expect that a rising share of loans will continue to be put into forbearance, putting further liquidity stresses on mortgage servicers.”
Kan, though, again found a source of optimism, this time with numbers suggesting that buyers are starting to reemerge from the woodwork.
“The housing market is in unchartered waters right now, but one positive trend is that purchase mortgage applications have increased for three straight weeks, with prospective buyers gradually returning in the various parts of the country that are reopening,” he said.
