Job Cuts Are Everywhere

Now we have the April job cuts report. It is exactly as you’d expect in that there were the most job cuts ever. The chart below shows there were 671,129 job cuts which is by far more than any month in the prior 3 recessions.

(Click on image to enlarge)

As the graphic shows, this is over twice as bad as the worst of the last 2 recessions. 633,082 of the job cuts were from COVID-19. The economy would be doing fine without COVID-19, but that’s obvious. We already knew it caused the recession, but this negative catalyst isn’t on the same scale as things like the trade war or Brexit. This is an atomic bomb on the economy. Challenger began tracking this data in 1993. 

Even if the data was tracked for 90 years, there wouldn’t have been a worse reading than this. That’s because in previous pandemics, think of the Spanish flu, we didn’t know limiting contact with people could slow the spread of diseases.

Most Furloughs Ever

Specifically, there were 170% more layoffs in April than there were in January 2002 which was the previous record high. There were 248,475 cuts in January 2002. You wouldn’t expect that to be the record considering the fact that the 2001 recession was very mild especially compared to the financial crisis. 

In response to this data, the Senior Vice President of Challenger stated, “No doubt employers have every intention of bringing back workers once the immediate crisis passes, but the indefinite nature of this pandemic coupled with the fact that we’re seeing recession- or even depression-level economic data means the vast majority of these jobs will not return any time soon.”

As you can see from the chart below, 78.3% of workers are on temporary layoff. A key point is that if the shutdown ends soon, we could see millions come back to work. However, if it lasts a few more months or comes back, we could see promises made to workers that their job will be there when this ends go unkept. 

The percentage that are furloughed usually spikes around recessions. But this scenario is different because everything is on hold. There’s actually a possibility normalcy returns this year. That’s not something you typically see in recessions.

(Click on image to enlarge)

A senior VP added, “The longer people are out of work, the less money they have to spend. The longer people feel unsafe going out and spending, the less likely many small and midsize businesses will keep people on the payroll.” 

Some states are reopening. Others are playing it safe. New York City’s shelter in place mandate was extended to June 6th even as some parts of upstate will partially reopen on May 15th.

Year to date, entertainment and leisure lost 415,206 jobs. Retail lost 114,327 jobs. This year was going to be relatively good for retail as a lot of companies reorganized around an omnichannel approach. We’re likely later in the ‘death of retail’ trend than many think. This isn’t the early stages anymore. 

Most companies that didn’t adapt to the changing landscape have already gone bust. Some of the remaining underperformers were finally killed by this recession.Services, automotive, and industrial goods lost 73,137; 56,292; and 43,190 jobs.

Worst BLS Report Ever

April BLS report is the moment we’ve all been waiting for. March labor report barely included any of the weakness caused by COVID-19. That was amazing in itself because the March report was one of the worst ones ever. That report is nothing compared to this one. The only good news is it can’t possibly get any worse. The unemployment rate will still rise in May. But there won’t be more job losses than there were in April if jobless claims have any veracity.

Specifically, there were 20.5 million job losses in April which was the most ever. It’s more than twice as bad as the entirety of the last recession which saw 9 million job losses in 2 years. As you can see from the chart below, the unemployment rate spiked to 14.7% which was a 10.3% increase. Underemployment rate spiked to 22.8% which is by far the highest ever. We don’t have data that goes back to the Great Depression.

(Click on image to enlarge)

A prediction for the April report was mid to low double digit unemployment. Now that we got a 14.7% print, we can be highly uncertain whether we will pass the Great Depressionary peak. So many people are leaving the workforce or underemployed. 

As you can see from the chart below, the labor force participation rate fell 2.5% to 60.2% which was the lowest rate since 1973. Obviously, with people getting older, the participation rate is in a long term downtrend. However, this recession accelerated it dramatically. Some older workers might not come back to the labor force when COVID-19 is over. Prime age labor force participation rate fell from 82.6% to 79.9% which is the lowest point since May 1983.

(Click on image to enlarge)

Within this report, the leisure and hospitality industry lost 7.653 million jobs which was the most. Because this industry pays the least and because the lowest educated people lost the most jobs, the wage growth rate actually spiked to 4.7%. That’s what’s known as compositional effects. 

Education and health services industry lost 2.544 million jobs. Hospitals are in dire shape. Remember, the healthcare sector hurt GDP the most in Q1. Impact to Q2 will be ever worse. Healthcare might not have the biggest negative impact because everything shutdown in Q2.

Information hadn’t been creating that many jobs in this expansion which was important to follow because it pays people the most per hour. It only lost 254,000 jobs which is great for wage growth. This is part of the compositional impact. Tech sector jobs are the most insulated from this recession because the economy is based on people working from home and consuming online content.