Only the Tip of the Iceberg

Scott Anderson
Posted by Scott Anderson
Chief Economist

The March employment report was shockingly bad. Seven hundred and one thousand jobs lost last month – more than 7 times higher than economists’ consensus forecast.

That pace of monthly job loss was exceeded only once during the Great Recession in March 2009 when the U.S. economy shed 800k jobs.

The worst part is we know the March job’s report is capturing only a glimpse of what is likely to come in the quarter ahead – unprecedented levels of unemployment and job loss the U.S. economy hasn’t seen since the Great Depression.

Honestly, I am running out of adjectives to describe this economic disaster unfolding at lightning speed. Economic models are incapable of forecasting what comes next, since we have never seen anything like it in the post-war period on which economist models are trained. Policymakers are literally flying blind and making things up as they go along, much as they were forced to do during the financial crisis and Great Recession more than a decade ago.

In fact, the economic damage from the COVID-19 shutdowns has unfolded so quickly that I suspect markets, business owners, policymakers, and importantly consumers have yet to fully understand the implications for our economic and financial future. It’s an economic and financial earthquake and our world is shifting beneath our feet.

The U.S. unemployment rate increased to 4.4% last month from 3.5% in February, while the U6 measure of unemployment, that includes involuntarily underemployed folks, increased an even greater 1.7 percentage points last month to 8.7%. We have never seen a jump in the U.S. unemployment rate of these magnitudes without a recession ensuing.

Job loss, furloughs, and business shutdowns have ballooned across most of the country as the coronavirus ravages cities and towns.  And we continue to increase our forecasts of lost economic activity and unemployment as a result.

U.S. GDP growth will likely contract at a 27.5% annualized rate in the second quarter with the unemployment rate rising to nearly 14.0%. Before the recession ends sometime in the fourth quarter this year, we see the unemployment rate peaking at around 17.0%. There is a big confidence band around these forecasts, but an unemployment rate between 15% and 20% looks like the most likely path right now. We think about 20.5 million U.S. jobs will be at least temporarily destroyed.

Looking at the details from the March employment report, leisure and hospitality accounted for 459k of the 701k jobs lost last month or 65% of the total. We expected leisure and hospitality to get hit harder with job losses than most sectors, but the fact that the job declines were so lopsided in only one category last month, suggests there are a lot more job losses to come from other industries too.

However, jobs were indeed lost across a broad cross-section of sectors last month from education and health services (-76k) and professional and business services (-52k) and trade and transportation (-49k) – a tell-tail sign the U.S. economy has already entered a recession. Only government (+12k) and information services (+2k) managed to grow net jobs last month.

Federal government payments and loans to address this problem, while sizable at $2.2 trillion, can’t stop the virus. And the economy won’t be able to truly recover until the widespread business shutdown begins to be lifted. Even so, it may be difficult to restart demand and it will take years to recreate the number of jobs that are being lost today.

To see more of our forecasts for the U.S. economy, check out this week’s U.S. Outlook Report


Reminder: All comments are moderated prior to publication and must follow our Community Guidelines.

Submit an Idea

[contact-form-7 id="32" title="Share An Idea"]

You are leaving the Bank of the West Change Matters site. Please be aware: The website you are about to enter is not operated by Bank of the West. Bank of the West does not endorse the content of this website and makes no warranty as to the accuracy of content or functionality of this website. The privacy and security policies of the site may differ from those practiced by Bank of the West. To proceed to this website, click OK, or hit Cancel to remain on the Bank of the West Change Matters site.