US unemployment has surged to 14.7 per cent, its highest level since the second world war, as the coronavirus pandemic led 20.5m Americans to lose their jobs in April in a painful blow to the world’s largest economy.
The grim picture of the US labour market in the midst of lockdowns and restrictions that have choked off economic activity will heighten concerns that any rebound from the suddenly deep recession could take longer than expected just a few weeks ago.
It will also raise pressure on US government authorities, from the White House to Congress and the Federal Reserve, to consider larger and more lasting stimulus measures to support the economy.
The Trump administration and US lawmakers have already passed about $3tn in fiscal stimulus measures since the coronavirus pandemic began in early March but the impact of many of those policies, including loans to small businesses and expanded jobless benefits, will start to fade in June and July.
The fall in non-farm payrolls in April — the largest drop on record — compared with economists’ expectations for a decline of 21.7m. In March, as the pandemic first started to spread in the US, the US economy lost 870,000 jobs.
The unemployment rate, which had been hovering at 50-year lows before the disease hit, was better than the 16 per cent economists had expected but sharply higher from just 4.4 per cent in March and its peak of 10 per cent during the 2008-09 financial crisis. During the Great Depression it was estimated to have reached about 25 per cent.
“The prospect of a V-shaped recovery is absolutely zero,” said James Knightley, chief international economist with ING. “Getting 40m jobs returning in the next 12 months? I simply cannot see it happening.”
Employment fell sharply across all major sectors, with particularly heavy job losses in leisure and hospitality, which shed 7.7m positions. Education and healthcare lost 2.5m jobs, while retail lost 2.1m. Manufacturing positions declined by 1.3m while state and local governments lost 980,000 jobs.
The labour force participation rate, which measures people in work or looking for employment, decreased 2.5 percentage points from March to 60.2 per cent, as social distancing measures affected people’s ability to look for work.
Teenagers experienced the biggest jump in joblessness, from 14.3 per cent in March to 31.9 per cent in April. Unemployment for both adult men and women was 4 per cent in March but climbed higher for women in April to 15.5 per cent, while the adult male rate rose to 13 per cent. Joblessness for Hispanics soared from 6 per cent to 18.9 per cent, while African-American unemployment jumped from 6.7 per cent to 16.7 per cent.
Counter-intuitively the report showed that wages climbed, as lower-paid workers such as restaurant employees were among those most affected by lay-offs. Average hourly earnings were up 7.9 per cent from a year ago, compared with expectations for a 3.3 per cent rise.
Market reaction to the historic jobs report was mixed. Long-dated Treasuries sold off, with the benchmark 10-year bond yield rising roughly 0.03 percentage points to 0.66 per cent. The more policy-sensitive two-year note gained slightly, sending its yield lower to 0.13 per cent. Yields fall when prices rise.
US equities were slightly higher after the figures came in slightly below expectations, with the S&P 500 opening up more than 1 per cent. The dollar index was unchanged.
“It is an astronomically high number,” said Randy Frederick, vice-president of trading and derivatives at Charles Schwab. “Even though we were all prepared for this, it is still shocking to see.”
Mr Frederick warned that next month’s jobs report could look even more dire, given that the report would cover a longer lockdown period. “The cut-off date for the data was April 18, so that means that this probably does not fully take into account the worst part of the lay-offs,” he said. The May unemployment rate could tick as high as 20 per cent, he said.
Significantly, the latest report showed the number of those unemployed who reported being laid off on a temporary basis had increased tenfold to 18.1m.
Economists at Goldman Sachs have noted that, over the past half century, the three recessions with the highest share of temporary job losses were followed by the fastest labour market recoveries. However, concerns remain about how many of these cuts will become permanent. The latest report shows the number of permanent job losses increased by 544,000 to 2m.
Efforts to curb the spread of the coronavirus pandemic, which has killed more than 70,000 Americans to date, began in March. States began to introduce social distancing measures and close non-essential businesses. This resulted in 33m Americans filing for first-time unemployment benefits over the seven weeks since then, ending the longest-running US economic expansion on record.
Larry Kudlow, the director of the White House National Economic Council, said the April jobs report was “full of heartbreak and hardship” and warned that the economic data would “continue to deteriorate” over the coming weeks even as states began reopening their economies. He said Trump administration officials were holding conversations with lawmakers from both parties about a new stimulus package but formal talks were on pause. “We’re going to take a look at things at the end of May and early June and see where we are in the economy,” he told Fox Business.
Democrats on Capitol Hill are, however, pushing for much swifter action, particularly to help low-income households. “We need a big, bold approach now to support American workers and families,” said Chuck Schumer, the top Senate Democrat, who has called for an effort in the mould of Franklin Delano Roosevelt’s New Deal in the 1930s. “Republicans who choose inaction in the face of these historic economic and health crises will be taking the same misguided path as Herbert Hoover,” he said.
The recognition of the depth of the recession hitting the US may also cause the Fed to consider more aggressive steps on its end, even on top of its move to slash interest rates close to zero, purchase vast quantities of debt and set up a slew of credit facilities to shore up financial markets, struggling businesses and municipalities.
“Today the challenge is for the Fed and Congress to get ahead of this crisis as it unfolds. After a strong start, there’s a big risk that they fall behind and the economy’s abrupt hard stop turns into a prolonged slump that would be ruinous,” said James McCann, senior global economist at Aberdeen Standard Investments.