It's hard to fathom that the Bureau of Labor Statistics' (BLS) estimate of 20.5 million jobs lost in April can be considered good news. But at least it was "better" than our expectation of a more dreary 26 million jobs lost for the month.

While better than we had feared, the unprecedented pace of payroll job losses in the past two months (21.4 million combined in March and April) vaulted over the job losses of the Great Recession (8.7 million losing streak from January 2008 to February 2010), bringing overall payrolls down to levels not seen since February 2011.

Chart 1

The most jobs lost once again were in leisure and hospitality, with 7.65 million jobs lost. Finer detail showed accommodation and food services were hit the hardest with 6.3 million jobs lost (or 32.4% of all private-sector nonfarm jobs lost in April). All other major employment categories reported significant job losses as well, but there were a few gleams of light amid the carnage. About 1,800 couriers and messengers were hired in April, 500 hired in "other information services," 100 at the Federal Reserve, and 1,000 at the federal government. The jobs diffusion index across industries (at 4.8) essentially showed 95% of all industries lost jobs.

Chart 2

The unemployment rate soared to another historical high of 14.75%, lower than our estimate of 18%. The civilian employment level plunged by 22.4 million, pushing the employment-population ratio to 51.3% (from 60% in March and 61.1% in February), yet another historic low and the largest month-over-month decline in the history of the data series. The huge 6.4 million drop in the labor force, which brought the participation rate to a 48-year low of 60.2%, also helps explain why the overall unemployment rate was relatively low. If the labor force held at pre-crisis levels, the unemployment rate would have been 19%. The U-6 unemployment rate, which includes individuals who are marginally attached to the labor force (not counted in the standard U-3) and better gauges labor underutilization, increased to 22.8% from 8.7% in March.

Chart 3

Chart 4

The household survey reported that 16.2 million unemployed workers said they were temporarily laid off (BLS definition is that those workers expect to return within six months or have a specific recall date), bringing the overall number of temporarily unemployed to just over 18 million, or 78% of unemployed folks. However, there were concerns about survey misclassifications. Indeed, the BLS noted that a large number of workers were recorded as employed but absent from work due to "other reasons," which may not have been the case. The overall jobless rate would jump by almost 5 percentage points, to 19.5%, if those workers were also labeled as temporarily unemployed.

Deceptive Wage Gains

Wage gains surged by $1.34 to $30.01 an hour in April. This translated to nominal wage growth of 7.9% over the year. While on the face of it a surprise, it's almost guaranteed that this jump in wages was not because people were getting raises. It had do to with a compositional effect largely because of significant job loss among lower-paid workers, which led to the averages arithmetically skewed higher. At turning points in the economy, compositional effects tend to swamp any changes in wages within sectors or occupations or even workers grouped by educational attainment. The workweek barely budged at 34.2 hours from 34.1 in March, a surprise given all the shuttered businesses. We suspect that there may also be a compositional effect at play, with the remaining workers on the payrolls covering more shifts

Aggregate weekly work hours--which captures both the job losses plus the drop in hours worked--fell off a cliff in April, dropping 14.9% in just one month. The aggregate weekly payrolls index, a proxy for total wages and salaries and which combines employment, average weekly hours worked, and average hourly earnings, declined by 10.9% month over month.

CARES ACT Will Cushion Weekly Income Loss To Support Households, For Now

That said, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is likely to provide substantial support to folks out of jobs. The timing of receipt of funds may be delayed due to inadequate payment infrastructure, but the objective of the government is to get unemployment insurance and one-time direct transfer funds in the hands of households.

The CARES Act has (i) unemployment insurance provisions (UI) that now include an additional flat $600 per week payment (above the state benefit) to each recipient for up to four months, and (ii) extended UI benefits to self-employed workers, independent contractors, and those with limited work history. This means that those with weekly wages less than $600 are going to get more than 100% of their weekly wages in the form of unemployment checks if laid off. (Workers in the leisure and hospitality industry had average weekly wage of $435 in January and February.) Besides, direct transfers of $1,200 per person ($2,400 per household plus $600 each per child) up to a certain income threshold will help cushion the blow in lost wages and salaries of the unemployed, no doubt.

At least for the time being, when other consumption is curtailed due to containment measures, the personal savings rate is bound to increase further in April and household balance sheets should be spared from any significant damage.

Chart 5

Chart 6

We are concerned whether those temporarily unemployed workers will be reunited with their jobs when the virus is contained. The Payroll Protection Program was built to provide an incentive--loan forgiveness--to encourage employers to keep their employees on the books. Once the economy reopens, they have until June 30 to bring employees back to their payrolls.

While businesses would certainly want to make this commitment and get the reward, it depends on several factors. Will these businesses survive the closure? (The U.S. Chamber of Commerce/Met Life "Special Report on Coronavirus and Small Business" published on April 3 said that 43% of the small business owners surveyed said they thought they'd have less than six months before they'd have to close permanently, and 24% said that have less than two months.) And if they do survive, can the businesses afford to rehire all of their employees? Will they choose or be required to operate at reduced capacity? Will customers flock back to their stores and will revenues pick up once their doors open wide? And even if customers risk going out into the streets, will those customers have any money left to spend after the pandemic has devastated their financial health (and possibly their physical health)?

That will depend on the pace of the economic recovery once the virus is contained. Trying to open a $22 trillion economy is not as easy as turning on a light bulb. With that in mind, we expect a slow rollout across the states, and with that, a slow economic recovery.

At that rate, we expect that it will take almost two years for the economy to get back to levels of GDP seen in the fourth quarter of 2019, with the unemployment rate not reaching its precrisis rate until sometime in 2023. However, in such historic times, we suspect that the pace of the recovery once the virus is contained may be almost as tricky to project as the path of COVID-19.

Real-Time Data Tracking Close To Our Forecast For The Second Quarter

For now, April has tracked closely our forecast for the overall activity decline in the economy. We expect the second quarter to experience a 10.9% year-over-year output decline when all is said and done (see chart 7). The unemployment rate should peak in May and start moving back down (S&P Global Economics forecast for the second-quarter average unemployment rate is 14.4%). The nature of the connection between temporary workers and employers is fluid at best during uncertain times, and especially when the capacity utilization of customer-facing service sectors is hit hard (for example, leisure and hospitality, and retail trade) and may not be fully back to normal until the uncertainty on the path of virus is faded from consumer psyche and business reorganizations. We forecast the unemployment rate will fall as the year progresses but remain near 8% by the year's end.

Chart 7

Table 1

Table 2

Table 3