Economic Rulers and Benchmarks Made Obsolete by COVID-19

The economic measures from this coronavirus period will render our legacy economic rulers and benchmark data collars obsolete. The metrics being produced are beyond comprehension and will likely NOT be surpassed in our lifetimes. How can an equity analyst, banker underwriter, or economist fit, for example, the following three mind-boggling measures from this week into future charts?

• TSA passenger throughput in U.S. airports declines from 2.3 million per day level to just 150,000
• Jobless claims in the second half of March total 9.9 million or nearly 2X the total unemployed in 1H March.
• Oil demand has dropped by 30M barrels per day, or approximately the equivalent to the combined output of Saudi Arabia, Russia and the U.S.

All our graphics will look something like the following regarding jobless claims:

Now ask if today’s BLS jobs report revealing a loss of 701,000 jobs and an unemployment rate of just 4.4% is anywhere near as eye-popping as the airline passenger, oil demand or jobless claims metrics for March?

Leading up to the March Employment Situation Report on Friday, April 3, 2020, by the BLS was the ADP private payrolls report. The private employment numbers in the ADP NER (National Employment Report) was on one hand less terrifying than this week’s jobless claims, and on the other hand contrarian to the plethora of these first COVID-19 period economic metrics. According to ADP, “private sector employment decreased by 27,000 jobs from February to March.” That figure did not seem so shocking on the surface, but here is the important context behind that figure that can explain why it wasn’t so terrifying:

1. i. The ADP report utilizes data through the 12th of the month, or the same time period the Bureau of Labor and Statistics uses for their monthly jobs survey. There is no difference in survey period between ADP and BLS jobs reports to cause a distortion.
2. ii. The March ADP report does not reflect the full impact of COVID-19 on the overall employment situation as it only covers a period up to March 12, 2002, that precedes the plethora or “Shelter in Place” orders nationwide. In other words, the employment contraction being reported by both ADP and BLS for the April period is just the tip of the iceberg in job loss. Much worse data is ahead in future reports for the April and May periods.
3. iii. Every employment sector lost jobs except Education & Healthcare. Remote learning kept teachers employed, and the spreading COVID-19 virus put strains on healthcare workers like we have not seen since WWII.

The Numbers from the April 3, 2020, BLS April 2020 Employment Situation Report for March period: With the aforementioned perspective, the important figures from the government’s new jobs numbers are as follows:

• Job loss of 701,000 jobs versus the more than +250,000 figure for February.
• This April report for March period ends a 9.5-year record for consecutive months or positive job growth
• The unemployment rate rose to 4.4% from 3.5% – or nowhere near what is indicated by jobless claims. This increase is the largest over-the-month increase in the unemployment rate since January 1975, when the increase was also 0.9 percentage point.
• The number of unemployed persons rose by 1.4 million to 7.1 million in March. That is eye popping when one considers the U.S. had just 5.6 million people looking for work in February via the JOLTS data.
• The Labor Participation rate remains in the range of 63% at 62.7%
• The sector where jobs were most adversely impacted was Leisure & Hospitality (no surprise). Employment in leisure and hospitality fell by 459,000 – mainly in food services and drinking places.
• The one area where jobs were created was government (no surprise as more needs to respond to COVID-19.
• The shocker measure in this report was the rise in average hourly earnings – up 0.4% or $0.11/hour. This increase is actually not that surprising when one recognizes that more hourly workers were cut thus increasing the average hourly wage from more business, healthcare, etc, workforce in the equation/denominator.

Important Takeaways

The April government jobs report for the mid-February to mid-March period was nowhere near as eye popping as many other forward-looking measures like air traffic, oil demand or job claims. It’s going to get worse as this week’s jobs reports by both ADP and BLS covered only the first-half of March before the plethora of “Shelter in Place” orders. In addition, we are no longer comparing apples to apples in jobs claims data when, for example, sole proprietors are eligible to file for unemployment benefits. The relatively modest increase in the unemployment rate is not that surprising when one recognizes that a lot of idled labor has been given some sort of paid leave. That paid leave makes those workers ineligible for unemployment until those furlough or severance benefits are depleted.  Now you have some important perspectives on this week’s labor reports.