April 3, 2020

The unemployment rate unexpectedly jumped 0.9% in March from 3.5% to 4.4%.  The labor force fell 1,633 thousand in March.  Apparently, some of those 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 2,987 thousand.  As a result, the number of unemployed workers fell by 1,353 thousand.  Meanwhile payroll employment fell by 701 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 March.  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 March, labor force growth in the past year is now 0.0%.

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 March as both types of marginally attached workers rose in March.

We should probably be focusing more on the broadest measure of unemployment because it includes these underemployed individuals.  The broad rate rose 1.7% in March from 7.0 to 8.7%.  Look for this rate to climb sharply in the months ahead, perhaps reaching the 15.0% mark by midyear.

Not surprisingly, the  youth unemployment rate jumped in March from 7.7% to 10.3%.

There are a number of part time workers who say they want full time employment.  Like every other employment indicator it jumped in March 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, we now expect a 20% drop in second quarter GDP.  Estimates currently range from a drop of 10% to a decline of 35%.  Any of those estimates are possible.  Remember, we still have not seen any second quarter data.  The estimates will converge as those data become available.  But right now we all know Q2 GDP will fall by a record amount.  But going forward the issue is how quickly the virus will show signs of slowing its rate of spread and how soon businesses will be able to reopen.  Based on the Chinese experience we are expecting to see early signs of improvement by mid-April and more clear-cut evidence by the end of the month.  If that is the case, consumer and business confidence would climb quickly, the stock market would surge upwards after having lost nearly 30% of its value in the past couple of months, and businesses could gradually re-open.  Following the 20% drop in Q2 GDP we anticipate an 8.7% snap-back in Q3 and 7.0% growth in the fourth quarter.

Stephen Slifer


Charleston, SC