May 8, 2020

Payroll employment plunged by 20,500 jobs in April after having declined 870 thousand in March.

Given the sharp drop in employment beginning in March and continuing into April, the National Bureau of Economic Research will probably conclude that the expansion ended in February 2020 and the recession began in March 2020.  But that determination will not happen until months from now, probably some time towards the end of the year.  The jobs drop was much larger than expected in March, but given the dramatic increase in initial unemployment claims in the last two weeks of March it is clear that jobs are going to fall more quickly this time than in any other recession.  But rather than being attributable to a drop in demand, this time the recession has been caused by the measures imposed by Trump to halt the spread of the corona virus which has basically forced all restaurants, bars, retail shops and other non-essential businesses to close.  That, in turn, has forced them to lay off — hopefully temporarily — millions of workers.  The economy is beginning to reopen so jobs should begin to climb again by June.

Not surprisingly the job losses in April were widespread.  Job losses in the leisure and hospitality industry of 7,653 thousand were particularly acute.  Of those 5,491 thousand were in the food and beverage category Retail lost 2,106 thousand jobs.  In health care jobs fell 1.4 million led by losses in offices of dentists, physicians, and other health care practitioners.  Education employment fell by 457 thousand.  Social service sector jobs — including child care declined 651 thousand.   Construction declined 975 thousand thousand.  Factory employment fell by 1.3 million.  Government jobs fell by 980 thousand, largely at the local government level.  Employment in transportation and warehousing fell 584 thousand.

In addition to laying off people, businesses can also shorten the hours of existing employees.  The nonfarm workweek rose 0.1 hour in April to 34.2 hours after having fallen 0.3 hour in March.  The March level was the shortest workweek in almost a decade.

The changes in  employment and hours worked are reflected in the aggregate hours index which fell 14.8% in April to 93,9 after having fallen 1.5% in March.  If jobs fall again in May but rebound sharply in June it appears that Q2 GDP is on track to decline by 60.0%.  However, that figure will not be released until the end of July.  Prior to its release we will receive employment data for May and June as well as other important indicators, so the forecast will get fine-tuned between now and then.  But whatever it turns out to be, it will be a record decline in GDP.  If we see a drop of that magnitude, it will raise the question of whether the tactic of trying to halt the spread of the virus by shutting down the economy was worth the cost.

However, the virus is showing some signs of slowing down its rate of spread.  At the same time the government’s $2.5 billion in fiscal stimulus is quickly spreading into the economy.  As a result we , anticipate an increase in GDP of 50% or so in Q3 and 7.0% growth in the fourth quarter.

Stephen Slifer


Charleston, S.C.