March Payrolls: First Leg Down

The March employment report was no doubt the first in a series of grim payroll figures. Most economists expected far fewer losses, because the survey was conducted in the middle of the month, before the most serious of the lockdown measures and, before jobless claims reached seven-figure levels. This is just the beginning of the down-leg of what we all hope will be a V-shaped recovery, with the ultimate shape of this cycle depending heavily on economic and health developments over the next two months.

Headline Numbers

  • Payrolls fell by 701k, far below expectations, and a dramatic reversal from the prior two months’ revised average of 245k.
  • The unemployment rate jumped nearly one percentage point, to 4.4% from 3.5%, which may be an understatement and is surely just a taste of what’s to come.
  • Average hourly earnings’ growth held steady at 3.1%, but wages are a lagging indicator. This pace is likely to slow in the months ahead, but it depends on the length of the recession.

Key Details:

  • Clear signal, messy details: The 701k lost jobs in official payrolls looked much worse than the ADP report’s -27k, and worse than all but 4 months of the Great Recession. And this data is from only halfway through March, before jobless claims reached seven-figure levels. This discrepancy is a testament to (1) how much difficulty workers have had filing for unemployment and (2) how much hiring declines have been concentrated among small business, which make up over 40% of private-sector payrolls. A former BLS Commissioner suggested that methodological concerns (it’s hard to estimate the creation and death of firms when the economy is changing so quickly) mean the payroll losses may be underestimated too, but in any case, jobless claims imply much greater losses ahead.
  • iCIMS Monthly Hiring Indicator saw declines in hires and job openings, but not on this scale, and there were still pockets of growth in manufacturing and business services.
  • The rise in the unemployment rate was the largest since 1975, yet it was very likely still an understatement. For one thing, the BLS’s use of home visits in parts of its household survey may have depressed response rates. For another, the BLS noted there seem to have beeb some misclassifications of “absent from work” that should have been “unemployed on temporary layoff.” The BLS estimates that the unemployment rate might be up to a full percentage point higher, and it is universally expected to rise into the double digits, past the prior peaks in the Great Recession and in 1982.
  • Distinguishing temporary layoffs from true separations will be critical: The BLS said, “In March 2020, there was an extremely large increase in the number of persons classified as unemployed on temporary layoff” and still that might have been an understatement, given the spike in “employed but absent from work.”
  • The Hurricane Katrina example: Louisiana’s unemployment rate quickly double then dropped after a few months, but amid a lower level of total jobs. Many people moved away, some just gave up. In our current situation, the moving away part won’t happen at the national level, so more people will give up, unless employers and the government act to preserve employment relationship.
  • Hours and under-employment:
    • Part-time work jumped 1.4 million and the “U6” under-employment rate spiked more than 1.5 percentage points, from 7.0% to 8.7%. This measure peaked at 17.2% in April 2010 and bottomed out at 6.8% just this past December. Like the unemployment rate, this has a ways to go.
    • The average workweek dropped to 34.2 hours from 34.4, compared to a high of 34.6 last seen in June 2018 and a low of 33.7 in June 2009.
  • Industry breakdown: The size of these job losses may be just a foretaste, but the pattern looks like a good reflection of the initial disruptions and even some of the knock-on effects.
    • Leisure/hospitality (-459k) and retail (-46k) were hit hard, but also business services (-52k), while transportation and warehousing (-5k) and finance (-1k) fared relatively well.
    • On a relative basis, construction (-29k) and manufacturing (-18k) were still hit relatively hard.
    • Health care & social assistance declined 61k, mostly due to fewer visits to doctor’s offices and dentists (-41k), but also child care (-19k). Only slight losses in nursing facilities (-2k), and hospitals were flat (+200).
    • Nearly two thirds of the job losses were in leisure/hospitality alone, where social distancing and lockdowns have hit hardest – shuttered businesses, canceled events and travel.
  • The way forward, for government and for business:
    • Where we go from here depends on whether we keep up the heat on fiscal policy – especially on the execution side. News of delays in the Small Business Administration’s lending program is deeply concerning, especially given estimates from the JPMorgan Chase Institute that many small businesses have 4 weeks or less of cash on hand – and we are already several weeks into widespread shutdowns.
    • Employers have a role to play as well. Many larger employers are already thinking about how to maintain relationships with employees – through furloughs, reduced hours, and candidate marketing campaigns – but small firms that go out of business won’t have any relationships to maintain.
March Payrolls: First Leg Down

Written By

 
iCIMS Staff

Published

April 3, 2020

Category

Market Trends

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