US jobs slump is just the tip of the iceberg

The US is expected to be about three to four weeks behind Europe in feeling the impact from the Covid-19 global pandemic. Therefore, when the US Bureau of Labor Statistics (BLS) reported 701,000 non-farm job losses for the month of March on 3 April, it came as a severe shock. The figure is seven times greater than the Reuters consensus survey estimate.

Private sector job losses total 713,000, only slightly offset by 18,000 public sector jobs created, of which 17,000 are temporary for the 2020 census survey.

The fall in non-farm jobs is the worst recorded since March 2009 and abruptly ends the 113-month streak of positive gains. Data from the household survey showed a rise in the unemployment rate from 3.5% to 4.4%, taking it back to a rate not seen since August 2017. But what is more alarming is the size of the jump – the biggest monthly rise since January 1975.

Not only has the number of unemployed risen sharply, but so has the number of those that report being underemployed. The US measure of unemployment and underemployment rose from 7% to 8.7%.

Social sectors saw the biggest hit to activity and jobs. Employment in the leisure and hospitality sector fell 459,000, mainly in food services and drinking places. Employment in healthcare and social assistance also fell by a large 61,000. Interestingly, only 46,000 jobs were lost in retail, which seems very low compared to the number working in the sector.

Despite how poor the latest figures are, the BLS warns that the period covered by the survey predates most of the shutdowns related to the outbreak. Indeed, data on initial jobless claims for unemployment benefits (social insurance) show over 10 million new claims in the four weeks to 28 March.

As more data is released that shows the extent of the unfolding economic crisis, policymakers (fiscal and monetary) could return with more stimulus measures. Our forecast has the US unemployment rate reaching 8% by the end of the second quarter. Clearly, we are seeing just the tip of the iceberg and the start of a very deep recession.


Important Information
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
This material, including the website, has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.