Strategy Insight: Labor Market Blues

May 12, 2020
BBH Chief Investment Strategist Scott Clemons discusses the implications of the April jobs report, which highlighted the immense toll the COVID-19 pandemic has had on the U.S. labor market.

Current economic data is wreaking havoc with every economic graph. Prior to last Friday’s Bureau of Labor Statistics (BLS) report on the employment situation, the y-axis on the graph of monthly job gains and losses bottomed at -1 million, well encompassing the worst ever month for the labor market, a loss of 811,000 jobs in April 2009. Last Friday, the BLS reported that an astonishing 20.5 million people lost their jobs last month, far eclipsing the cumulative loss of 8.4 million jobs during the entirety of the global financial crisis, which now appears as only a blip in the historical record.

Chart showing  quarter-over-quarter GDP growth from 2004 through May 31, 2020, with a dip of about 4.5% in 2020.


The headline unemployment rate for April came in at 14.7%, a little better than consensus expectations of 16%. The report, however, acknowledged the difficulty of conducting the usual employment surveys amidst such economic disruption, noting that “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.” The fog of economic war imposes more than the usual uncertainty on the precision of these figures. We anticipate that these figures will worsen in May as the ripple effect of quarantines and business closures extends.

The economic toll of the intentional decision to shut down all but essential businesses is evident in the unemployment rate graph, as is the rapidity of the downturn. Three months ago, the headline unemployment rate was 3.5%, the lowest it had been in 50 years. Last month, it stood at 14.7%, the highest point since the BLS began keeping records in 1948.

Chart illustrating unemployment rates from 1994 through April 2020; April 2020 stats: broad (22.8%), headline (14.7%), college (8.4%).


As worrisome as the headline trends are, a closer look at various measures of unemployment raises further concerns. The green line in the nearby graph tracks the unemployment rate of workers with a college degree or higher. This measure jumped from a record low of 1.9% in February to 8.4% in April. A more expansive view of the labor market is captured in the blue line. This broader definition of employment (the so-called U-6 measure) includes workers who are involuntarily employed part-time (because they can’t find a full-time job) or who have become so discouraged in their search for work that they have given up looking. This measure jumped from 7.0% in February to 22.8% in April, a rise of 15.8 percentage points.

Anecdotally, white collar and professional workers are more likely to be able to work remotely throughout this crisis, thereby retaining their job, income and financial security. It is harder for blue collar workers to do the same, and the broader measure of unemployment objectively shows that the brunt of the labor market crisis is falling on this portion of the labor force. It is not surprising that many states are eager to reopen economic activity and get this part of the labor force back to work, but in the meantime, these trends exacerbate the inequality of wealth and income that has been widening for years.

If there is a silver lining in this otherwise dark cloud of job losses, it is that 78.3% of these displaced workers believe that their unemployment is only temporary and that their jobs will be there as and when economic constraints are lifted. As some states begin to ease restrictions on businesses and public gatherings, we will see whether or not this confidence is warranted. To the degree that the labor market impairment in April turns out to be temporary, the employment picture could improve as rapidly as it deteriorated as local and regional economies reopen for business.

Chart showing percent of job losses deemed to be temporary from 1967 through April 2020, when the figure jumped to 78.3%.


The labor market is tightly tied to general economic conditions. Around two-thirds of gross domestic product is personal consumption, and consumption is, in turn, a function of income. People who have no income, or are worried about the stability of their jobs, are naturally reluctant to spend money. The recovery of the American economy from this pandemic-induced recession depends on the ultimate recovery of the labor market.

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