March jobs were awful. But the worst is yet to come

I thought that today's March jobs report might have relatively small job losses, despite the news of 9.9 million new unemployment claims over the last 2 weeks. That's because the surveys for that report were taken in the week before that spike in new claims, so I figured any job losses would be tepid to the point of ignoring the numbers.

I was wrong. It was a big number.

Nonfarm payrolls dropped by 701,000 in March, according to Labor Department numbers released Friday that only begin to show the economic damage wrought by the coronavirus crisis.

It was the first decline in payrolls since September 2010 and came close to the May 2009 financial crisis peak of 800,000. Some two-thirds of the drop came in the hospitality industry, particularly bars and restaurants forced to close during the economic shutdown.

January's gains were also revised down by 59,000, so all alleged gains in the job market that had happened in the prior 3 months are gone, and had the effect of a brick wall on what had recently been a gradual increase in job growth.

But as Jud Lounsbury of The Progressive notes, just because the country was gaining jobs overall, it doesn't mean things were great in a lot of places before March.

Trump said today that before the virus hit, "we had the greatest economy in the history of the world.

About half of counties were losing jobs BEFORE the virus hit. pic.twitter.com/8MdG8SXri2

— Jud Lounsbury (@JudLounsbury) April 4, 2020

As the CNBC article alludes to, more than 446,000 of March's losses were in the "accomodation and food services" sector. And that's before a lot of restaurants and hotels closed up, which means that figure likely gets a lot bigger in April's report. But there were also notable losses in retail (46,200), construction (29,000) and amazingly, health care! (-42,500, mostly in offices of doctors and dentists).

But as bad as the payrolls side of the report was, the survey of workers was worse.

That headline number reflects the count from establishments the government surveyed for its report. The household survey, which asks individual residences about their employment situation, showed a plunge of nearly 3 million.

The unemployment rate rose to 4.4% — from 3.5% — its highest level since August 2017 as employers just began to cut payrolls ahead of social distancing practices that shut down large swaths of the U.S. economy in order to stop the virus’s spread. An alternative measure that captures discouraged workers and those holding jobs part time for economic reasons jumped from 7% to 8.7%, its highest since March 2017.

The 1.7% increase in the U-6 is a big item to me, as it shows a lot of people had their hours cut even if they didn't lose their jobs, and it puts us basically at the same level that we were at when the Great Recession started at the end of 2007. Except with a lot more Boomers out of the work force, so it's 8.7% of a smaller portion of Americans.

If you dig into the actual jobs report, there was a sizable segment that talked about methodology and how the crazy circumstances that happened as the COVID-19 pandemic developed affected this month's numbers. To their credit, it seems that the BLS had a relatively expansive view of who was "unemployed" beyond people who were out of work and looking for a job. I'll put some key points in bold.

In the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week (March 8th through March 14th). Workers who indicate they were not working during the entire survey reference week and expect to be recalled to their jobs should be classified as unemployed on temporary layoff. In March 2020, there was an extremely large increase in the number of persons classified as unemployed on temporary layoff.

However, there was also a large increase in the number of workers who were classified as employed but absent from work. Special instructions sent to household survey interviewers just before data collection started for March called for all employed persons absent from work due to coronavirus-related business closures to be classified as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. Such a misclassification is an example of nonsampling error and can occur when respondents misunderstand questions or interviewers record answers incorrectly.

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 March) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 1 percentage point higher than reported. 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.

If I'm reading that correctly, it indicates to me that unemployment should have been above 5%, as some people that were off the job because of coronavirus-related closures likely were still listed as "employed" if they weren't formally laid off. Yikes.

And here's a note that indicates job losses in the payroll survey likely should have been more than 701,000.

In the establishment survey, workers who are paid by their employer for all or any part of the pay period including the 12th of the month are counted as employed, even if they were not actually at their jobs. Workers who are temporarily or permanently absent from their jobs, but are not being paid, are not counted as employed, even if they are continuing to receive benefits. The length of the reference period does vary across the respondents in the establishment survey; one-third of respondents have a weekly pay period, slightly over 40 percent a bi-weekly, about 20 percent semi-monthly, and a small amount monthly.

So if you got paid for the first week of March but not the second, it indicates to me that those people would be "employed" even if they weren't working in the week of the survey. Those people will show up in the April report as newly unemployed, unless they return to work in the next 2 weeks.

The biggest thing this bad jobs report likely cements is that March will likely have a decline in real GDP growth (and yes, that was a question, as the first 2 months had us tracking around 3%. But now the projections are for Q1 to end up at -3% or so, which shows what a bomb March will be.

And what's scary is that the bad figures from last month likely are only the first act, with larger declines to follow in Q2. The question will be how and when we pull out of the coronavirus-caused declines, and/or how much those declines spread past the retail and food services areas, and into other sectors. And if the current job losses lead to a spending slowdown, it WILL spread further.