Rising Wages and More Bad News From Friday’s Horrific Payrolls Report

By Lisa Bellfuss – Re-Blogged From Barrons

The coronavirus pandemic claimed 20.5 million jobs in April as companies across America were forced to close and consumers stayed home to cap the disease’s spread.

The Labor Department said Friday that the job losses in April followed a downwardly-revised loss of 870,000 in March . So far, about one in five workers are unemployed.

Investors knew this would be one of the worst jobs reports in history . The decline in nonfarm payrolls for April is about three times as bad as the jobs lost over the entire Great Recession, with the depth of the losses not seen since the Great Depression. But the headline number was about in line with the 21 million job losses economists predicted, and the unemployment rate—at least on the surface—looks not as bad as feared. Stocks rose following the report, with the S&P 500 up about 1.1% and the Dow Jones Industrial Average higher by 1.2% in afternoon trading.

The question that remains is how quickly these laid off workers can be rehired and start spending again to restart the U.S. economy.

“Bottom line, we can analyze the internals every which way but when the jobs lost were due to a purposeful shutdown, it has a different context rather than if it was from a natural economic downturn. We need to shift the focus now to how many businesses will reopen in coming months and quarters and how many of these lost jobs will come back,” says Peter Boockvar, chief investment officer at Bleakley Advisory Group.

There are a few numbers within the April report that suggest rehiring won’t be swift. The U-6 unemployment rate, which includes those whose hours have been cut to part-time from full time, jumped to 22.8% from 8.7% in March and 6.9% a year earlier. That’s much higher than the more commonly-referenced U-3 rate, which rose to 14.7% last month. The U-3 rate came in below the 16.6% economists anticipated, but it’s for the wrong reasons and it doesn’t quite capture the current situation given how many people’s hours have been cut and how many people can’t look for a job during the pandemic.

The U-3 unemployment rate would be far worse if not for plunging labor force participation. A drop in that rate to 60.2%—the lowest since January 1973—reflects the massive number of people laid off since mid-March who can’t actively look for work or have been told they’ll have a job to return to. The steep decline in participation effectively gave an artificial bump to the U-3 rate.

Moreover, issues around counting who is temporarily laid off or employed but not working, versus permanently laid off, are clouding the numbers. The Labor Department said Friday that if If the workers who were recorded as employed but absent from work due to “other reasons” had been classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher than the reported 14.7%.

Speaking of artificial bumps, the disproportionate number of lower-wage workers affected by the crisis distorted the wage figure in the latest report. Investors should ignore the reported 8% increase in average hourly earnings from a year earlier as wages only appear to have risen because so many low-wage workers were washed out of the calculation.


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