Saturday, May 09, 2020

A Dreadful Employment Report

Much was written about the employment report on Friday, yet the the S&P 500 Index rose 1.69% and the Dow Jones Industrial Average rose 1.91% on the day. As much of the commentary notes, me included, the equity markets are forward looking. Not enough can be written about how bad this report is though. The equity market will eventually not look past this data if a V-shaped improvement is not seen in the economy and employment. Total civilian employment from the household survey fell be over 22 million individuals--a staggering decline.

In addition there are 9.8 million individuals not counted in the labor force but want a job. As noted by the Bureau of Labor Statistics, "these individuals were not counted as unemployed because they were not actively looking for work during the last 4 weeks or were unavailable to take a job."

Further, the April report notes, "the labor force participation rate decreased by 2.5 percentage points over the month to 60.2%, the lowest rate since January 1973 (when it was 60.0%). The employment-population ratio, at 51.3%, dropped by 8.7 percentage points over the month. This is the lowest rate and largest over-the-month decline in the history of the series (seasonally adjusted data are available back to January 1948)."

Finally, the BLS attempted to account for Covid-19 related layoffs and non-Covid-19 ones by changing the way some questions were ask and the subsequent classification of the response. The BLS's comment on this for April notes though, "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 (on a not seasonally adjusted basis). (emphasis added)  However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses." Clearly, with the number of persons not in the labor force, and accounting for classification issues, the unemployment rate is much higher. The reopening of economies, not only in the U.S., but around the world, is at a critical stage.

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