A Hard Look: Job Losses and the Economic Toll of Coronavirus
May 11, 2020
By Krista Eberly, CFP®
Securities Analyst II
The economic impact of the coronavirus pandemic is now appearing in hard data. Millions of Americans filed for unemployment benefits over the past few weeks as businesses temporarily – some permanently — closed their doors, most due to government direction or its after effects.
On Friday, the Bureau of Labor Statistics reported that non-farm payrolls fell 20.5 million in April. The unemployment rate spiked to 14.7%. The two charts below from the Wall Street Journal show the impact across business sectors. The top chart is the service sector breakdown; the bottom one is goods producing. To no one’s surprise, the service sector was the hardest hit area with 7.65 million jobs lost in leisure and hospitality alone. Most of the losses in goods producing industries – 1.33 million — came from manufacturing.
April Job Losses: Service Sector
April Job Losses: Goods Producing
Never in our modern history have we seen this many jobs lost in a single month. To put today’s data in perspective, the second highest month of job losses was in late 1945 when almost 2 million jobs were lost following the end of World War II. In addition, the speed at which this occurred is mind-boggling. The unemployment rate was at a 50-year low just two months ago; now, it is at the highest level in three-quarters of a century. This speaks to the severity of the impact and to the speed at which the coronavirus was able to bring the U.S. economy to an abrupt halt.
How can the market go up when jobs go down?
How did the markets respond to the worst jobs report ever? Surprisingly well. Stocks rallied on Friday and ended the week in positive territory. While this may seem counterintuitive, this market behavior is quite normal. Remember that the stock market is a forward-looking indicator. Investors knew the April job report would be terrible; we just didn’t know the magnitude. Now that we know, attention is turning to what’s next – the lifting of restrictions on travel, entertainment, and retail activities.
With states starting to ease restrictions, the pace of new job losses should slow. However, some states are still facing backlogs of unemployment claims and some businesses will permanently close their doors due to COVID-19. Only time will tell where the labor market goes from here. The recovery is likely to be gradual.
In the meantime, April was a strong month for the markets and investors recouped some of the losses recorded in March. Have you reviewed your account recently? Contact an advisor today — we are here to help navigate you through these unprecedented times.