It can be unsettling that when human tragedy strikes we tend to talk in the strict, sterile terms of statistics. When the U.S. employment report is released on Friday, we will try to provide context and a framework for understanding the catastrophe occurring throughout the country that is accompanied by a secondary focus on the numbers.
We expect that there will be roughly 22 million jobs lost and that the unemployment rate will increase to 17%.
We expect that there will be roughly 22 million jobs lost and that the unemployment rate will increase to 17%, both of which will understate the labor dynamics at play across the economy as many people who thought they were temporarily furloughed find themselves facing permanent layoffs.
We have been quite open about our estimation that the true unemployment rate is now well above 20%. For this reason, we will focus on not just the U-3 metric, which is the traditional measure of unemployment, but the U-6, which is total unemployed. That metric includes all discouraged workers, those employed part time for economic reasons, and those marginally attached as a percent of the civilian labor force. The U-6 measure of unemployment could be anywhere between 25% and 30%.
With respect to average hourly earnings, we would strongly recommend that the data be gently ignored. Given the dislocation in the labor market, lagging wage data means absolutely nothing in the current context or really for the remainder of the year.
The major question going forward with respect to wages is whether there is an increase in real wages accompanied by a decline in output and production.
That would create the conditions for a longer and deeper recession accompanied by deflation and an extended period of high unemployment.
Or will wages remain sticky and downward nominal wage rigidity set in followed by pent-up deflation like that observed during the 2010-20 recovery? That period featured sluggish wage growth accompanied by modest economic growth and a return to full employment over time.
Rather, we would urge a focus on hours worked and aggregate hours worked. We expect a decline in hours worked to fall to 33, which is less than that necessary to qualify as full-time and sustain health care benefits.
Perhaps a good question to ask from the April hours data will be: How do securities analysts justify valuation of the S&P 500 at 2,880 when more than 30 million Americans have lost their jobs over the past several weeks, and a good many of those who are working face the risk of falling back to working 30 hours per week?
The overwhelming majority of the damage to the labor market by category will be in the services sector, with retail, leisure and hospitality, trade and transport all facing historic one time losses.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
