Last week’s employment report for April will go down in history but for all the wrong reasons. The report showed the magnitude of rapid job loss resulting from the pandemic. The monthly change in payrolls showed 20,500,000 jobs lost in April, following a loss of 870,000 jobs in March, as the unemployment rate rose from 4.4% to 14.7%. The change in average hourly earnings for the month was 4.7%, up 7.9% year over year. This change in earnings resulted from lower-wage jobs being impacted more severely. The historic decrease in jobs reflected in the report most likely still underestimates total job losses. It is very possible that the actual unemployment rate is over 20%.
The next few months will be critical to determining if the majority of job losses are temporary or permanent, as the economy tries to reopen in the U.S. and globally. At this point, roughly 80% of newly unemployed workers expect their jobs to return, but that number is subject to how quickly and effectively the economy reopens. The behavior of consumers, which represents 70% of gross domestic product, will also be critical to determining how much permanent damage has been done to the economy.
Markets will continue to seek an equilibrium between the profound impact on the real economy and the effect of tremendous monetary and fiscal stimulus. This process will lead to quick and severe sell-offs and rallies, and may produce other unusual market conditions like we saw with negative oil prices a few weeks back and negative fed fund futures last week.
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