The US job market has completely cratered within mere weeks. And it isn’t coming back anytime soon.
The pandemic forced local and federal officials to shut down the American economy, delivering an instant shock to the labor market. Almost like a light switch, millions were out of work – with a record 20.5 million jobs lost in April.
Experts say a return to pre-crisis levels of unemployment could take a couple years, or even longer. Although some jobs will return quickly as states reopen their economies, many others could be gone for awhile. Some jobs may never return.
“Even though the shock has been severe and rapid, the healing process will take much longer,” said Danielle DiMartino Booth, CEO and chief strategist for Quill Intelligence.
The stunning loss of 20.5 million US jobs is easily the largest one-month decline since the government began tracking the data in 1939. The unemployment rate soared to 14.7% in April, the highest since the Great Depression. It’s quite the spike from just 3.5% in February and 4.4% in March.
Even relatively optimistic economists told CNN Business the labor market won’t fully recover by the end of next year.
“There’s just been too much damage to come back that quickly,” said Ethan Harris, head of global economics research at Bank of America.
‘Too much damage’
The White House itself is acknowledging the carnage is not nearly done.
Kevin Hassett, a senior economic adviser to President Donald Trump, told CNN’s Poppy Harlow on Friday that the unemployment rate will likely hit 20% in May.
Hassett called the mass layoffs “heartbreaking” because “each unemployed person is a person whose life is now in turmoil.”
By the end of 2020, Bank of America expects the unemployment rate will descend to 9.6%. That’s still a very high number, nearly equivalent to the worst months of the Great Recession.
The big concern is that until there is a vaccine, many Americans won’t go to restaurants, concerts, stadiums or do anything that involves a crowd.
“People will self-regulate. Just because your governor says you can go out, doesn’t mean you will do it,” Harris said.
Bank of America expects the unemployment rate will retreat to 7.5% by the end of 2021 and won’t reach pre-crisis levels until 2022.
JPMorgan: It could take ten-plus years to recover
Gus Faucher, chief economist at PNC, sees a slower recovery in which a return to healthy levels of 4% or 5% unemployment doesn’t happen for three or four years.
And although the unemployment rate could come down sharply, he said, there will likely be pockets of unemployment for years in areas of the economy most sensitive to the pandemic.
“There are going to be permanent job losses,” Faucher said, especially in industries like entertainment. “We’re going to see a structurally smaller retail industry. A lot of small businesses – despite the Paycheck Protection Program – will go bankrupt. And there will be permanent changes to travel and tourism.”
Still others are warning of an even more drawn-out recovery.
“To get back near 3.5% unemployment, then you’re talking ten-plus years with any kind of rational modeling,” Bob Michele, chief investment officer at JPMorgan Asset Management, told CNN Business.
He noted that after the Great Recession, it took the United States six years to return to 5% unemployment after the Great Recession. And it was another three to four years to get to 3.5% unemployment.
“People think there is going to be a V-shaped recovery. We’re just not seeing it,” Michele said. “It will take a while for unemployment to come down to something that is reasonable.”
Health response is critical
If there was a silver lining in the jobs report, it was that 18 million people indicated they expect to be rehired by their employer. That suggests many workers are optimistic about the road ahead.
“Prophesies like that can be self-fulfilling,” said Hassett, the White House economist, adding that the figure “surprised the heck out of me.”
But there were other alarming trends. The U6 jobless rate, which captures the percentage of Americans who want a job but have given up trying to find one, surged to 22.8% in April. That’s up from just 8.7% the month before.
Hassett told CNN this rate could go even higher, hitting 25% before “hopefully” falling following a transition period this summer.
Economists stressed that the damage done to the jobs market shows why it is so critical for public health authorities to get the pandemic under control. They called for a robust ramp-up in coronavirus testing and tracing.
“If you don’t have tracking and testing, this recovery will be very small,” said Bank of America’s Harris. “People need to know the disease isn’t running rampant. That effort, which has been lagging a bit, is absolutely critical.”
Will Americans spend like before?
It’s not just the health crisis that could change consumer behavior.
The shocking speed of the economic shock could persuade Americans who were once willing to spend aggressively to hunker down.
“For the first time in our lifetimes, US families have been faced with the reality of what it means not to have saved for a rainy day,” said Booth, the Quill Intelligence CEO and a former Federal Reserve official.
Already, the US savings rate spiked in March to 13.1% – the highest level since late 1981. That’s a big deal because more two-thirds of the US economy is driven by consumer spending.
“If there is a new frugality when we come out of this crisis,” Booth said, “the economy is in for a rude awakening.”