US and Canada: Shocking as Expected, But not Hopeless

By Dan North | May 8, 2020

US Economic News

The April employment report showed wide-spread devastation, even if it was slightly better than expectations. 

  • The economy lost 20.5 million jobs, a bit better than expectations, but really, who cares if it was 20.5 million or 22 million?
  • The unemployment rate shot from here to the moon, going from 4.4% to 14.7%. The 10.3% increase was by far the biggest on record, easily surpassing the previous record of 1.3%. Note that just two months ago it was at a 50 year low of 3.5%.  It’s the speed of the increase more than the magnitude which is shocking.
  • The U-6, or the “real unemployment rate” took a similar ride going from 8.7% to 22.8%, easily surpassing the previous record of 17.2%. But again it was the speed of the increase which was stunning, rising 14.1% in one month, again blowing by the previous record of 1.7%. 
  • There were losses in every industry, but more than half the job losses were in the two categories of retail, and leisure and entertainment.
  • Since most of the job losses were in industries with lower wages, average hourly earnings actually leaped +4.7% m/m while the previous record was +0.6% m/m.  The y/y rate rose to 7.9% from 3.3%, again a record.
  • The employment/population ratio, which conceptually measures how much of the population is actually at work, powering the economy along posted… well, you guessed it… a record drop, and a record low.
  • But, there was some good news.
    • First, consider the fact that all of those numbers are in the past.  Three weeks ago is a long time these days.  It’s the future which is important and it’s likely that next month’s job losses will be much smaller.
    • Second, of the 23 million people who identified themselves as unemployed last month, fully 18 million said they were on “temporary layoff”.  In other words, the vast majority of people who suddenly became unemployed, truly believe it’s temporary, and they are probably right.  All of those layoffs were due to governments closing businesses, which can be opened back up. This is a much better situation than if the jobs had been lost to an energy crisis or a financial crisis or a war for instance.  We suspect that they are right, although it may take quite some time for all of them to become employed again.

Here are the pictures.

I had to double, triple check this first chart since it just looked so impossible, but it’s not.

Jobs Lost

But really the most important part is, when do we get the jobs back?

Let’s look at previous recessions to see how long it took to get those jobs back. The chart on the left below shows the cumulative number of jobs lost in each recent recession. Each line is a separate recession, and each line starts in the first month of job losses in that recession.  For instance, the black line represents the 1980 recession, which bottoms out at around -1,000 (the chart is in thousands, so -1,000 means -1,000,000) jobs lost, cumulatively. But then the line goes back up to 0 – meaning the economy regained all of the jobs lost – in about 12 months.  The worst by far was the Great Recession of ‘08, shown by the reddish-brown line, when we lost 9,000,000 jobs and it took 72 months, or 6 years, to regain them all.  Now, to show the current recession, I had to change the scale, with the resulting chart on the right.

It sure looks grim, but the job layoffs are temporary, and things are starting to open back up, if slowly.

Canada Economic News

  • The Canadian economy lost 2 million jobs in April after having lost 1 million the previous month.  Before that, the record loss had been a mere 125,000.  As shown in the chart, it’s hard to swallow.  However, the 2 million job loss was much better than expectations of 4 million. 
  • Every province suffered massive job losses.
  • No industry was spared, but the most heavily hit included accommodation and food services which lost -321k jobs, construction which lost -314k jobs, and manufacturing which lost -267k jobs.
  • The unemployment rate leaped to 13.0% just shy of the record of 13.1%. Over the last two months, the unemployment rate has risen a massive 7.4%. However, this month’s increase was better than expectations, and it was much less than in the US where the two-month increase was 11.2%.
  • Like in the US, since more of the job losses were concentrated in lower-paying industries, hourly wages soared to 10.9% y/y, up from 4.1% y/y before the shutdowns.
  • And there was good news similar to the situation in the US: 3.8 million unemployed workers said their layoffs were not only temporary but that they expected to go back to the same jobs they had before. Again, we suspect that they are right, although it may take quite some time for all of them to become employed again.
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