NFP Quick Analysis: Three reasons why the worst jobs report is even uglier, market implications

  • The crash in the participation rate shows that many more are out of the workforce.
  • The real unemployment rate is higher, at 22.8%. 
  • BLS admits underreporting which is worth another five percentage points. 

The worst Non-Farm Payrolls report in history – 20.5 jobs lost and an unemployment rate of 14.7% – is shocking but investors were already bracing for disaster. The lockdowns imposed to curb the spread of coronavirus have taken their toll. The headline figures are devastating, but other statistics already paint an even darker picture.

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1) Crash in participation

The participation rate had already tumbled from 63.4% to 62.7% in March and has now extended its fall to 60.2%. That means that the calculation of the unemployment rate is skewed to the upside. When fewer of those out of work are counted as unemployed, the percentage is lower. 

Will they come back? That is an open question.

2) The real unemployment rate is higher

Better estimates include the U-6 or "real unemployment rate – which had already leaped to 8.7% in March and is now 22.8% – and the broadest measure, the employment to population ratio, which stood at 60% in March and is now only 51.3%

3) Underreporting 

Even when disregarding that U-6 "real unemployment rate, the Bureau of Labor Statistics which publishes the NFP has this to note, emphasis mine:

If the workers who were recorded as employed but absent from work due to "other reasons" (over  and above the number absent for other reasons in a typical April) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher than reported

That means that the headline could have been 19.7% and not 14.7%. Taking the previous figures into account, things look dire.

Market implications

Traders had their tin hats on, bracing for horrible figures. The details are worse and imply the situation is far worse. Stocks may suffer from deteriorating prospects for the US and global economies. 

The safe-haven US dollar has room to rise – when the US coughs, the world catches a severe sickness. 

S&P 500: Five charts to explain the comeback and why coronavirus carnage may crash it again

More information: 

US jobs report post-release checklist – May 8th, 2020

NFP Actual, Consensus and Deviation Negative The "worst US job report ever" printed a headline 20.5M job loss. Even if better than the -22M expected, it is a dismal figure.
NFP Revisions Negative March job growth number was revised downwards, from -701K to -870K.
Unemployment rate Negative

U3 unemployment rate spiked from 4.4% to 14.7%, while U6 underemployment skyrocketed from 8.7% to 22.8%.

Labor Force Participation Rate Negative The share of people in the workforce plunged from 62.7% to 60.2%, way below expectations.
Average Hourly Earnings Positive The layoffs are mostly being on lower-income jobs, as average wages figures have climbed above the roof to 4.7% on the month and 7.9% in yearly terms.


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