Unemployment Situation Much Worse than April BLS Report
By the Curmudgeon
Below were the headline stories in the NY Times, WSJ, and SF Chronicle, respectively in Saturday’s print editions:
· U.S. UNEMPLOYMENT IS WORST SINCE DEPRESSION
· Decade of Job Gains Erased in April
· Jobless rate rises to highest since 1939
Not really a surprise, but scary nonetheless. We analyze the BLS report with strong supporting commentary from ShadowStats’ John Williams revealing the true jobs picture.
This month’s jobs collapse has occurred with unprecedented speed. In February, the unemployment rate was at a more than 50-year low of 3.5%, and employers had added jobs for a record 9½ years. In March, the unemployment rate was just 4.4% vs. an actual rate of somewhere between 20% and 30% at the end of April.
Summary of Bureau of Labor Statistics (BLS) April 2020 Unemployment Report:
On Friday, the BLS reported that 20.5 million jobs vanished in April, the worst monthly loss on record, while the unemployment rate rose to 14.7 percent. Unemployment is now at its highest point since 1939. That is the highest rate and the largest over-the-month increase in the history of the series (seasonally adjusted data are available back to January 1948). The number of unemployed persons rose by 15.9 million to 23.1 million in April. The sharp increases in these measures reflect the effects of the coronavirus pandemic and efforts to contain it.
As noted in previous Curmudgeon posts related to unemployment reports, BLS presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics. The establishment survey measures non-farm employment, hours, and earnings by industry.
BLS said that employment fell sharply in all major industry sectors, with particularly heavy job losses in leisure and hospitality. Of course, this was due to the nationwide shutdowns of factories, stores, offices, and other businesses.
Minorities and poor people have suffered the most from the economic shutdown. Job losses were especially severe among Latinos, whose unemployment rate leaped to 18.9% from 6% in March. The African American rate jumped to 16.7%, while for whites it rose to 14.2%.
Almost half the 14 million U.S. hotel and restaurant workers lost their jobs last month. But losses have spread to nearly every industry, with even health care shedding 1.4 million jobs, nearly all of them from doctors’ and dentists’ offices, as Americans have cut back on all but necessary visits.
In addition to the millions of newly unemployed, 5.1 million others had their hours reduced in April.
The BLS statement included this very relevant, significant paragraph which most reporters missed:
The labor force participation rate decreased by 2.5 percentage points over the month to 60.2 percent, the lowest rate since January 1973 (when it was 60.0 percent). Total employment, as measured by the household survey, fell by 22.4 million to 133.4 million. The employment-population ratio, at 51.3 percent, dropped by 8.7 percentage points over the month. This is the lowest rate and largest over-the-month decline in the history of the series (seasonally adjusted data are available back to January 1948).
Comment and Analysis:
“The jobs report from hell is
here,” said Sal Guatieri, senior economist at BMO
Capital Markets, “one never seen before and unlikely to be seen again
barring another pandemic or meteor hitting the Earth.”
“In just two months the unemployment rate has gone from the lowest rate in 50 years to the highest rate in almost 90 years,” said Gus Faucher, chief economist at PNC Financial.
“It’s literally off the charts,” said Michelle Meyer, head of U.S. economics at Bank of America. “What would typically take months or quarters to play out in a recession happened in a matter of weeks this time.”
The scale of the job losses last month alone far exceeds the 8.7 million lost in the last recession, when unemployment peaked at 10 percent in October 2009.
“I thought the Great Recession was once in a lifetime, but this is much worse,” said Beth Ann Bovino, chief U.S. economist at S&P Global.
Nearly all the job growth achieved during the 11-year recovery from the financial meltdown has now been lost in one month. The last time unemployment was this high was at the tail end of the Depression, just before the U.S. entered World War II. Unemployment peaked at 25% during the decade-long slump.
Joblessness, by any measure, could be even higher in the May BLS report, which will reflect many new initial unemployment claims this month.
Temporary or Permanent Job Losses?
The unemployment report indicated that the vast majority of April’s job losses — roughly 75% — are considered temporary, a result of businesses that were forced to suddenly close but hope to reopen and recall their laid-off workers. Whether most of those workers can return anytime soon, though, will be determined by how well policymakers, businesses and the public manage their response to the health crisis. The Curmudgeon believes the key will be to greatly increase testing and contract tracing. Economists worry it will take years to recover all the jobs lost.
“What I can do is I’ll bring it back. Those jobs will all be back, and they’ll be back very soon. And next year we’ll have a phenomenal year,” President Trump said in an interview with Fox News.
Diane Swonk, chief economist at Grant Thornton said such optimism was misplaced. She countered with this statement: “This is going to be a hard reality. These furloughs are permanent, not temporary.”
“There is no safe place in the labor market right now,” said Martha Gimbel, an economist and labor market expert at Schmidt Futures, a philanthropic initiative. “Once people are unemployed, once they’ve lost their jobs, once their spending has been sucked out of the economy, it takes so long to come back from that.”
Meanwhile, the nonpartisan Congressional Budget Office (CBO) has projected that the jobless rate will be 9.5% by the end of 2021. Victor and I think it will be much higher than that.
Harvard economist Raj Chetty said the economy’s health will hinge on when the outbreak has subsided enough that most Americans will feel comfortable returning to restaurants, bars, movie theaters and shops.
Unemployment Rate Greatly Understated by BLS:
Sadly, the unemployment numbers are actually quite a bit worse than BLS reported. Government errors and the incongruous way it measures the job market, makes the real unemployment situation.
The BLS admitted the mistake but won’t fix it! BLS said its survey takers erroneously classified millions of Americans as employed in April even though their employers had closed down.
Betsey Stevenson, who was a member of the Council of Economic Advisers as well as the Chief Economist of the U.S. Department of Labor, highlighted, there was incorrect classification of many individuals in April. “Interviewers were told to classify people who were employed [but] absent from work due to COVID-related reasons as temporarily unemployed. Many did this incorrectly —correcting for this error raises the unemployment rate to nearly 20%,” she tweeted. “The BLS doesn't do "ad hoc" corrections,” she added. (For more on this BLS faux pas, please see John Williams’ analysis and comments below).
Also, millions more Americans have filed unemployment claims since the data was collected in mid-April.
Finally, people who are out of work but aren’t actually looking for a new job are not officially counted as unemployed. An estimated 6.4 million people lost jobs last month but did not search for new ones, most likely because they saw little prospect of finding work with the economy shut down. Classifying those people as unemployed would push the rate to 24%, according to calculations by Heidi Shierholz, an economist at the Economic Policy Institute.
In note to subscribers (we recommend you subscribe!), ShadowStats John Williams wrote:
The BLS will not correct its headline numbers formally, because they state: “... according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.”
That’s nice. Look at Graph 1. below. It plots the full history of the headline Unemployment Rate from 1948, up to the April 2020 14.7% headline reading. The diamond marker reflects the more-accurate 19.5% headline level, as suggested by the BLS corrective analysis. Consider that the headline April U.3 is the highest-ever reading for the series, by about five percentage points, except for the “corrected” number, which would be the highest ever by about ten percentage points. This is not a minor error. If I were the head of the BLS, not only would I find a way of correcting the meaningfully bad headline numbers, but also make sure that current surveying techniques were fully understood by the people in the field, before next week’s surveying of May unemployment begins. A headline or “corrected” May 2020 unemployment rate of about 30% lies in the balance.
John’s other key comments and opinions on this BLS report:
· Headline April U.3 Unemployment at 14.7%, Should Have Been 19.5%
· The BLS Had Disclosed the Same Surveying Error Last Month;
· Where Headline March 2020 U.3 Was 4.4%, It Should Have Been 5.3%
· Headline April Unemployment Soared to Historic Highs from March:
· U.3 from 4.4% to 14.7%, U.6 from 8.7% to 22.8% and ShadowStats from 22.9% to 35.4%
· More Realistic, Those Same Unemployment Numbers, Corrected:
· U.3 from 5.3 % to 19.5%, U.6 from 9.6% to 27.7% and ShadowStats from 23.7% to 39.6%
· April 2020 Payrolls Collapsed by an Unprecedented 20.5 Million Jobs
· Annual Growth in April 2020 Money Supply Measures Soared to Historic Highs
· U.S. Economic Activity Has Collapsed to Great Depression Levels
· Federal Reserve is Creating Unlimited Money [1.]
Note 1. (John Williams): Systemic turmoil is just beginning as the Fed and U.S. Government continue to drive uncontrolled U.S. dollar creation. The April 29th FOMC Statement confirmed, as did Fed Chairman Powell at his April 29th FOMC Press Conference, that current polices will continue, “... until we’re confident the economy is solidly on the road to recovery.” Such is in the context of exploding, record annual growth in April 2020 Money Supply (M1 at 27%, M2 at 18% and ShadowStats M3 at 20%), unlimited liquidity creation and a Fed Funds range of 0.00% to 0.25%.
Here’s a 1-year chart from the St. Louis Fed showing the sharp increase in M1 starting in March of this year:
Financial Market Impact:
With respect to financial markets, Williams says that physical Gold and the Swiss Franc [2.] continue to protect U.S. Dollar purchasing power, especially vs. large cap stocks. This is clearly depicted in Graph 18:
Note 2. Swiss
Francs are extremely difficult to hold for a U.S. based investor. Even if one were to open a Swiss bank or money
market account, you’d have to pay fees and a negative
interest rate to buy and hold Swiss Franc’s in your account. You’d also have to
fill out special tax forms for foreign holdings. Hence, we don’t
recommend Swiss Francs for U.S. residents.
"One can buy physical Swiss Francs (hard currency) at most major U.S. banks. I would no more hold electronic CHF at this point in time than I would electronic or paper gold."
Worldwide Economic Contraction:
This week, the Bank of England projected that Britain would see its biggest annual economic decline since 1706, when the European powers were embroiled in the War of the Spanish Succession.
Unemployment in the 19-country euro-zone is expected to surpass 10% in coming months as more people are laid off. That figure is expected to remain lower than the U.S. unemployment rate, in part because millions of workers in places such as France and Germany are staying on the payrolls with the help of (socialist) government aid that covers a large portion of their salaries.
While no one knows the real unemployment rate in China (government statistics cannot be trusted and the unemployment numbers only include full time urban residents- not migrant workers), we can say with confidence that its export led economy will get hit especially hard by the global pandemic. The sharp contraction in global demand poses considerable risks for prolonging labor market weakness, which will hold back China’s economic recovery in the second half of the year.
Economists from UBS and Société Générale think that as many as 80 million China residents might have been out of work in March (and more in April). That is nearly 20% of the urban workforce. Few of the unemployed receive any help from the government, which greatly exacerbates the plight of those without a job in China. That implies domestic demand will crater, if it hasn’t done so already?
“You take my life when you take the means whereby I live.” WILLIAM SHAKESPEARE, The Merchant of Venice
“Of all the aspects of social misery nothing is so heartbreaking as unemployment.” JANE ADDAMS, Twenty Years at Hull-House
“A man willing to work, and unable to find work, is perhaps the saddest sight that fortune's inequality exhibits under this sun.” THOMAS CARLYLE, Chartism
Good health, good luck, be well and have compassion for your fellow man. Till next time…...
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Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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