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) today reported 701,000 non-farm job losses for the month of March 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.
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