Nearly 3.3 million Americans applied for unemployment benefits last week amid a widespread economic shutdown caused by the coronavirus. This is a “truly unprecedented” number, according to Mark Hamrick, Senior economic analyst at Bankrate.com. (March 26)
April will almost certainly go down as the worst month ever for American workers.
The jobs report, out Friday, will likely reveal the highest U.S. unemployment rate on record at 15% to 20%, but even that figure will probably understate the scale of joblessness across the nation.
Some economists reckon that one-third or more of Americans who were laid off in the weeks leading up to the Labor Department’s April jobs survey aren’t even looking for work and so aren’t counted as unemployed. That’s an unusually high figure and reflects the unprecedented economic twilight zone created by the coronavirus pandemic.
The vast majority of states shut down their economies to contain the spread of the coronavirus, and many idled workers are expected to return to their jobs as businesses reopen. But others likely have lost those positions permanently as consumers remain wary of contagion and firms struggle to recoup lost sales even after states allow them to start up again, economists say.
As a result, the extent of the longer-term damage that the April jobs report highlights will likely be unclear for months.
“The key thing is how rapidly the economy is going to bounce back,” says economist Sophia Koropeckyj of Moody’s Analytics.
More than 30 states began at least partially reopening for business the past week and others are set to follow.
The headline numbers forecast for Friday’s report will be ugly. Economists surveyed by Bloomberg predict 21.5 million job losses and an unemployment rate of 16% — up from 4.4% in March — both the highest on record by far, according to their median estimate. Keep in mind that February’s 3.5% jobless rate matched a half-century low.
From mid-March until Labor’s employment survey was conducted in mid-April, 22 million Americans filed initial claims for unemployment insurance, a reliable measure that mostly reflects layoffs. Since then, another eight million workers have sought benefits.
The median forecast also expects a largest-ever drop in the labor force participation rate – the share of Americans working or looking for jobs — from 62.7% to 61.3%. Without that decline, the median unemployment rate forecast would be nearly 18% in April, according to Jacob Oubina, senior economist at RBC Capital Markets .
Lydia Boussour, senior U.S. economist for Oxford Economics, expects the report to show even more job losses — 28 million. She cites an Economic Policy Institute analysis noting that as many as 14 million Americans couldn’t file jobless claims because of swamped phone and computer systems.
Yet she estimates one-third of those laid off left the labor force, pushing the participation rate below 60%, a level that hasn’t been seen in more than 50 years. If those jobless Americans had looked for work, the unemployment rate could soar to upwards of 21%.
In March, an eye-popping 69% of workers who lost their jobs left the labor force, according to Koropeckyj’s analysis of Labor data.
Goldman Sachs expects a broader measure of unemployment — that includes discouraged workers who aren’t looking and part-time workers who want full-time jobs — to leap to a record 29%.
Why so many headed to the sidelines
Of the 1.7 million who left the workforce in March, 1.2 million didn’t want a job, the Moody’s data show. With much of the economy shuttered, there likely were few jobs available, Koropeckyj says. Others may have been fearful of catching the virus while job-hunting, caring for sick relatives or watching kids who were home now that schools are closed across the country, she says.
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Americans age 20 to 24 and those 65 and older make up about 15% of all workers but accounted for nearly 70% of those leaving the labor force in March, Oubina says. The young workers likely live at home and so taking a hiatus “is a viable option until things return to normal,” he says. Meanwhile, he says, many older workers probably decided to retire sooner than planned.
Many other workers have been furloughed, or temporarily laid off, during the shutdowns. Under the CARES Act, jobless Americans are eligible for generous unemployment benefits — the regular state payment of $300 to $400, plus a $600 federal supplement. Normally, workers must look for a job to be eligible for unemployment insurance but the federal government has asked states to waive that requirement during the pandemic, nudging more people out of the workforce.
Nearly half the workers who lost jobs in March said they were on temporary layoff.
Kristmas Matos, 38, of Anchorage, Alaska, lost her job as a chef on March 17, along with 34 co-workers at F Street Station, a downtown restaurant. For a couple of weeks, she looked for restaurant and office jobs, to no avail.
“There’s just nothing open,” she says. “There’s not a lot available.”
So Matos stopped hunting and got unemployment insurance that roughly equals her lost wages but doesn’t make up for her $100 to $200 in weekly tips. Although she can pay her rent and other bills, “It’s been a little tight,” she says, adding that she’s no longer socks away some money each month. She’s also home-schooling her teenage son.
Matos believes she’ll eventually be rehired at the restaurant, but “I’m not confident about when that’s going to happen. Is it going to be a month, two months, a year?” she says. “What if it’s two years and we’re not 100% fully open?”
How quick will the rebound be?
The fate or workers like Matos hinges on how swiftly the economy recovers. Koropeckyj expects a strong rebound in the third quarter as the pandemic eases. But she figures consumers will remain cautious well into 2021, with unemployment at 9% by the end of the year and 8.5% at the end of 2021. She doesn’t see total employment returning to its pre-pandemic level until 2023.
“You still have permanent dislocation,” she says. “The economy has been upended.”
Oubina is more sanguine than most economists. He believes a federal program that provides small businesses with forgivable loans to cover their payroll and other costs – as long as they retain workers or rehire those laid off – can pull unemployment below 10% as soon as May. But a second wave of the virus in the fall, which many health officials predict, would keep joblessness elevated at 7% by year-end.
If the country manages to dodge a second wave, he foresees unemployment tumbling to 4% by December. And all those layoffs?
“I think it’s all temporary,” he says.
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