Unemployment rate jumps to 4.4% but worst is yet to come

The unemployment rate jumped to 4.4% in March, but the stat is more than a bit misleading. Things will get much worse.

Initial Reaction

The headline jobs number fell by 701,00. The Econoday forecast was -150,000 jobs. But none of the numbers reflect the surge in unemployment claims in the last two weeks.

As noted yesterday today's Jobs Report Will Look Far Better Than It Really Is

In the household survey, the reference period is generally the calendar week that contains the 12th day of the month. In the establishment survey, the reference period is the pay period including the 12th, which may or may not correspond directly to the calendar week.

The mass layoffs mostly started after the BLS competed its surveys.

Forget about -701,000. There are at least 10 million more unemployed than reported today.

The BLS provided this note today.

In March, the unemployment rate increased by 0.9 percentage point to 4.4 percent. This is the largest over-the-month increase in the rate since January 1975, when the increase was also 0.9 percentage point. The number of unemployed persons rose by 1.4 million to 7.1 million in March. The sharp increases in these measures reflect the effects of the coronavirus and efforts to contain it.

Measures from the household survey pertain to the week of March 8th to March 14th.

Government Workers

Federal government employment rose by 18,000 in March, reflecting the hiring of 17,000 workers for the 2020 Census.

Job Revisions

The change in total nonfarm payroll employment for January was revised down by 59,000 from +273,000 to +214,000, and the change for February was revised up by 2,000 from +273,000 to +275,000. With these revisions, employment gains in January and February combined were 57,000 lower than previously reported.

BLS Jobs Statistics at a Glance

• Nonfarm Payroll: -701,000 - Establishment Survey
• Private Nonfarm Payroll: -713,000 - Establishment Survey
• Employment: -2,987,000 - Household Survey
• Unemployment: +1,353,000 - Household Survey
• Involuntary Part-Time Work: +1,267,000 - Household Survey
• Voluntary Part-Time Work: -1,574,000 - Household Survey
• Baseline Unemployment Rate: +0.9 to 4.4% - Household Survey
• U-6 unemployment: +1.7 to 8.7% - Household Survey
• Civilian Non-institutional Population: +130,0000
• Civilian Labor Force: -1,633,000 - Household Survey
• Not in Labor Force: +1,763,000 - Household Survey
• Participation Rate: -0.7 to 62.7% - Household Survey

BLS Employment Report Statement

Total nonfarm payroll employment fell by 701,000 in March, and the unemployment rate rose to 4.4 percent, the U.S. Bureau of Labor Statistics reported today. The changes in these measures reflect the effects of the coronavirus (COVID-19) and efforts to contain it. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.

Unemployment Rate – Seasonally Adjusted

The above Unemployment Rate Chart is from the BLS. Click on the link for an interactive chart.

Hours and Wages

Average weekly hours of all private employees fell 0.2 hours to 34.2 hours. Average weekly hours of all private service-providing employees fell 0.3 hours to 33.0 hours. Average weekly hours of manufacturers fell 0.3 hours to at 40.4 hours.

Average Hourly Earnings of All Nonfarm Workers rose $0.11 to $28.62 . That's a gain of 0.39%.

Average hourly earnings of Production and Supervisory Workers rose $0.10 to $24.07. That's a 0.42% gain.

Year-Over-Year Wage Growth

• All Private Nonfarm rose from $27.76 to $28.62 a gain of 3.1%.
• Production and supervisory rose from $23.28 to $24.07, a gain of 3.4%.

Table 15 BLS Alternative Measures of Unemployment

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

The official unemployment rate is 4.4%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 8.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Strength is Relative

It’s important to put the jobs numbers into proper perspective.

In the household survey, if you work as little as 1 hour a week, even selling trinkets on eBay, you are considered employed.

In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.

In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Household Survey vs. Payroll Survey

The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.

If you work one hour, you are employed. If you don’t have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.

Looking for jobs on Monster does not count as “looking for a job”. You need an actual interview or send out a resume.

These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.

Final Thoughts

Once again, due to the survey week, this report does not properly reflect the massive amount of layoffs that have taken place.

We will know more in the next couple of weeks as the weekly unemployment claims pile up. I expect the unemployment rate will jump to at least 12% and more likely something closer to 20%.

The US unemployment rate which takes into consideration involuntary part-time work may surge as high as 40%. The consequences will be severe and there will not ve a V-shaped recovery.

A deep recession is coming up.