The coronavirus pandemic has devastated America’s economy and millions of workers have lost their jobs. It is by far the worst economic shock most people have witnessed in their lifetimes and it’s going to get worse before it gets better.
Economists polled by Refinitiv expect the US economy to shed another 8 million jobs in May, bringing the tally of jobs lost during the coronavirus pandemic to 28.5 million – more than three times the number of jobs lost during the 2008 financial crisis.
That would push the unemployment rate to nearly 20%, a record high. The Bureau of Labor Statistics, which is set to release its jobs report at 8:30 am ET Friday, began tracking monthly data in 1948.
The only silver lining: we might be nearing the peak.
America went on lockdown in March to prevent the further spread of the virus. The BLS data is based on a survey that wraps around the middle of the month. That’s why the job losses in March – 881,000 – were modest compared to the following month. In April, 20.5 million jobs were erased and the unemployment rate jumped to a record 14.7%. The actual rate was probably even higher, as millions of people out of work were misclassified, according to the BLS.
During the Great Depression, the unemployment rate peaked at 24.9% in 1933, according to BLS. Back then, only annual data was recorded.
It will get worse before it gets better
May, or perhaps June, will be the worst of the labor market crisis, before the unemployment rate rapidly declines in the second half of the year, economists at Goldman Sachs predict. The exact timing, however, comes down to how many people will return to work – and how quickly.
Weekly jobless claims have been pointing in the same direction. First-time jobless claims have declined for ten weeks in a row after peaking at a revised 6.9 million in late March. Last week’s report from the Department of Labor showed the number of people who filed for unemployment benefits at least two weeks in a row declined for the first time since the crisis began. That has given economists cautious optimism that some people are slowly returning to work as states across the country are reopening.
However, the trend didn’t hold in Thursday’s report. Continuing claims stood at 21.5 million, slightly up from the prior week and more than expected. The data suggests that the labor market recovery will be slow.
On Wednesday, the ADP national employment report showed 2.8 million private-sector jobs were lost in May, far less than the 9 million economists had expected. Even though the ADP and BLS reports aren’t directly linked, the better-than-predicted data shored up more optimism that the worst might be behind us.
Still, more than one in four American workers – nearly 43 million people in total – has now filed for first time unemployment benefits during this crisis and this week’s 1.8 million new claims were still nearly 10 times higher than before the pandemic. The economic pain is far from over.
Rehiring is hard to do
Although many economists are predicting the unemployment rate will fall rapidly as people return to work, the coronavirus economy might not recover quickly.
Oxford Economics expects the unemployment rate will remain at 10% by the end of the year.
Even when businesses welcome workers back, they might only offer reduced hours, forcing more people into involuntary part-time jobs.
The Federal Reserve noted in last week’s Beige Book – a report on current economic conditions – that some employers are having a hard time retaining or rehiring staff because workers collected more on unemployment insurance than they would on their salaries. Other reasons to stay home included child- and elder-care responsibilities, the Fed said.
Washington’s multi-trillion-dollar stimulus package to get the country through the Covid-19 recession included an expansion of unemployment benefits, as well as one-off stimulus checks. That left some people, especially those in lower-paid jobs, to have more money at their disposal in unemployment than they did before.
The government currently pays out an additional $600 per week to people receiving jobless benefits, but the boosted payment is slated to roll off at the end of July, unless it gets extended.
There is a lot of uncertainty over what the US labor market will look like over the summer. With some luck, the worst is over and the rebuilding can begin.