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A record breaker

May 11, 2020

Nonfarm payroll employment plummeted by a record 20.5 million for April. Moreover, every employment category saw declines except for temporary Census workers. The payroll survey goes back to 1939, and the previous record large decline came in 1945 as World War II was ending – but that drop of nearly two million pales in comparison with April’s figure.

The U-3 unemployment rate soared to 14.7 percent, the highest level since the household survey began in 1948 and well above the previous high of 10.8 percent in the deep 1981-82 recession. While April’s disastrous level did not rise to the levels see in the Great Depression, it was held down by a spike in the number of people who left the workforce. The civilian labor force fell be nearly four percent, also a record, and without this the unemployment rate would have been significantly higher. The U-6 unemployment rate, which captures most measures of discouraged workers, leapt to 22.8 percent for April, and the rise from March (more than 14 percentage points) may be a better view of the degree that joblessness rose in the U.S. in April (which would have brought the U-3 rate up to around 19 percent).

Perhaps the “best” news in the report was that of the 23 million workers who were unemployed in April, about 18 million thought that this was short-term (presumably expecting to be brought back to work within six months). Average hourly earnings jumped by 4.7 percent for April, and while faster wage growth would normally be viewed as a positive, it likely came because by far the largest increases in unemployment came from those with less education – who would have the lowest earnings. The higher share of still employed workers had more education and on average higher earnings, so the average for the workforce spiked. It is not indicative of firms paying their workers higher wages.

With many states relaxing mandatory stay-at-home orders in May, the job and unemployment rate figures may start to modestly improve in coming months. Ultimately the state of the job market will depend upon how the coronavirus propagates, when effective therapeutics and ultimately vaccines appear, and how governments and consumers respond