Covid-19 Diary Number 5 (May 26, 2020)

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The Labor Department’s jobs report for April offered official confirmation of what we already knew: the U.S. economy is in deep trouble.

Though this collection of data is the worst since the Labor Department began this statistical series in 1957, the official report probably understated the extent of the economy’s troubles.  It showed that the nation’s payrolls fell by more than 20 million workers last month and that the number of unemployed increased by 16 million, to 14.7 percent of the country’s workforce, and that some 4 million of the men and women who lost their job last month have given up trying to find new work.  At the same time, a different Labor Department report announced that in the last seven weeks almost 40 million Americans applied for unemployment insurance, implying an unemployment rate of well over 20 percent, a figure not seen since the Great Depression.

The details included in the Labor Department report offer new evidence of how widespread is the economic pain:

  • Payrolls dropped in all but 5 of the 176 work categories and subcategories used by Labor Department statisticians.
  • Of the few sub-categories that showed an increase, the only one worth mentioning is the 4.7 percent rise in “warehouse and distribution center” employment. (There should be no trouble guessing which firm dominates that.)  A miniscule rise in employment for “messengers” and what the Labor Department refers to as “other information services” are doubtless related to the rise in deliveries.
  • The only other area reporting a rise in payrolls was the federal government, where payrolls increased a mere 1,000 on a base of close to 3 million employees, a rise of less than one tenth of one percent.
  • Other government areas made cuts –– local government in particular –– trimming payrolls by some 800,000 workers, or some 5.4 percent, mostly teachers and school administrators.

The private sector, which employs some 83 percent of the country’s workers, saw its payrolls drop some 19.5 million in April, a stunning 15.1 percent:

  • Manufacturing dropped 1.3 million workers, 10.7 percent of the number they employed in March.
  • Construction payrolls dropped by just under 1 million, a 12.8 percent fall from March.
  • Services, a large sector, were hit harder, with a loss of more than 17 million jobs, or nearly 16 percent, from March.
  • Within the services area, the greatest damage was in “leisure and hospitality,” where payrolls fell by almost half or about 8 million.
  • The relatively small subsector of childcare shed about one-third of its employees –– slightly over 1 million.
  • Considering that Covid-19 is fundamentally a medical emergency, it is striking that healthcare payrolls also fell, by some 2 million, or 8.7 percent from March levels. Apparently the country’s concentration on the virus has forced a cut in other medical services, especially elective surgery.

When the May jobs figures become available June 5, they will show still more economic damage. Probably the erosion from April to May will fall short of the steep slide reported for last month, but the data will still describe a worsening situation. Markets may take this news hard, because investors have been focusing on how the economy might come back in a re-opening.  But a retrenchment in the face of a hoped-for re-opening might provide a buying opportunity. Because a quick and robust recovery remains a very open question, investors would do better not to focus on market timing but concentrate on the longer-term future, which, despite today’s intense fears, provides greater assurance of a successful market recovery.

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