Following 113 straight months of job gains, the U.S. economy shed 701,000 jobs in March, providing a glimpse of things to come. The internal dynamics inside the report are a sober, clear-eyed precursor to what is going to be the largest bloodletting in the labor market since the 1929-1933 period of the Great Depression.
The policy implications of the report and the knowledge gained through the 10.44 million first-time jobless claims during March are stark. Despite Congress committing roughly 11.4% of gross domestic product in an attempt to mitigate the effects of shutting the economy down to limit the spread of the coronavirus, it is clear that it is not enough.
The question is: Does the political authority have the will to test the limits of conventional wisdom and the outdated economic dogma that populate the floor of the U.S. Senate?
Given the gravity of the crisis before us, we, like the Federal Reserve, are recycling many of our Great Recession-era metrics. Our preferred metric of the health of the labor market, those who face part-time involuntary unemployment, jumped by 1.622 million, from 4.138 million to 5.765 million. This increase in those facing involuntary part-time employment will be above its long-term average in just one month, effectively wiping out all of the gains over the past four years.
The decline in overall hours worked points to a plunge in household spending in March and April.
The unemployment rate increased to 4.4%; however, that is to be ignored since we know that the near real-time unemployment rate is most likely well above 10%, given the damage to the labor market in March. The U-6 underemployment rate jumped from 7% to 8.7%, which foreshadows what will clearly be a move in that aggregate well above 20% in the near term.
Perhaps the most important information in the report is the decline in overall hours worked, which points to a plunge in household spending in March and April. Aggregate hours worked declined 1.1% on the month, while total private hours worked declined 0.6% over that same period. Manufacturing hours worked declined 0.7%.
Wage gains on the month provide a perfect glimpse into a world that no longer exists. Wages always lag recoveries and recessions. Average hourly earnings increased by 0.4% on the month and 3.1% on a year-ago basis. Wages peaked in late 2019, and we expect a lagged easing in this data as the crisis evolves later this year.
The details of the report are in line with what one can visibly observe. The service sector shed 659,000 jobs, with the 459,000 decline in leisure and hospitality providing the majority of the losses. Trade and transport shed 49,000 jobs, while retail trade saw a loss of 46,000. Business services lost 52,000, education and health 76,000, goods producing 54,000 and construction 29,000. Government, information and the financial sector all saw modest gains.
For more information on how COVID-19 is impacting midsize businesses, please visit the RSM Coronavirus Resource Center.
