Economists tend to be a smug bunch, comfortable with their ability to see the future. After all, we’ve seen thousands of economic datapoints over many decades and have a good feel for normal limits. Then, the coronavirus changed everything!
No economist has ever seen unemployment increase 20.5 million souls in a single month — truly historic. That would have been unimaginable just four short months ago. We have not seen an unemployment rate of 14.7%, not since the Great Depression when it hit 24.9%. That’s bad enough, but looking behind the headline, it could have been worse. 6.4 million people dropped out the labor force and were not counted as unemployed.
The only good news in this report is actually bad news. Average hourly earnings normally increase a fractional .01 – .03% each month. This time, it jumped a whopping 4.7%. The reason is that the 20.5 million people fired was most low-income earners, such as leisure and hospitality. Their average hourly rate is only $16.86, compared to the full labor force of $28.67. Firing low income workers raises the average income of the remaining workers.
The next unemployment report will be June 5th, and I expect another 5 million jobs will have been lost, at least. While a big improvement, it is still tragic. We’re just running out of low-income people to fire. We may not reach the Great Depression of 24.9% unemployment, but this collapse has been more traumatic, because it happened so suddenly. It took years to reach that level in 1933, not just 4-6 months.
At year-end, most economists foresee the jobless rate somewhere between 6-12%. One thing is clear, we will not end the year anywhere near the level at the beginning of the year, which was a mere 3.5%.