May 8, 2020

The unemployment rate jumped 10.3 percentage points from 4.4% to 14.7% in April after having rise 0.9% in March.  The labor force fell 6,432 thousand in April as many workers who lost jobs gave up looking for another one because they knew it was unlikely to happen, or perhaps because social distancing made it impossible to look for a job.  You are counted as being part of the workforce if you are actively seeking employment.  Employment declined by 22,369 thousand workers.  As a result, the number of unemployed workers rose by 15,938 thousand.  Payroll employment fell by 20,500 thousand.  How can this be?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey. It could be that self-employed workers fell sharply in April.  The other reality is that there is just statistical noise between the two surveys.  The trend rate of growth is similar, but with wide variation from month to month — the household survey being the more volatile of the two.

With the drop in April labor force growth in the past year is now -3.7%

While the official rate is the most widely used, the reality is that the official rate can be misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of marginally attached workers jumped sharply in April as both types of marginally attached workers rose in that month..

We should probably be focusing more on the broadest measure of unemployment because it includes these underemployed individuals.  The broad rate jumped by 14.1% in April from 8.7% to 22.8%.  We expect this rate to climb further to 27.0% in May.

Not surprisingly, the  youth unemployment rate jumped in April from 10.3% to 14.7%.

There are a number of part time workers who say they want full time employment.  Like every other employment indicator it jumped in April in part because employers probably shifted some full-time workers to part-time hours in an effort to cut cuts in the face of the economic disruption caused by the corona virus,

For what it is worth, 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

NumberNomics

Charleston, SC