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The closely watched monthly employment report released on Friday contained the anticipated levels of historic job losses. States and the federal government continue to grapple with controlling Covid-19 and the need to re-open the economy. Daily volatility in mortgage markets remain low, and the change in mortgage rates for the week again was minimal. Let’s dig deeper…
Unemployment Rate. The jobs report for April is the worst in American history! The national U-3 unemployment rate rose to 14.7% in April (from 4.4% in March). Non-farm payrolls plunged by 20.5 million. To put that in perspective, after the recession in 2008-09, payrolls hit rock-bottom in February 2010. Ten years later, in February 2020, payrolls were up 22.8 million. But now, in only one month, almost all of the gains of the prior decade were wiped out. Civilian employment, an alternative measure of jobs (that includes small-business start-ups) dropped 22.4 million in April, erasing all the gains in that measure since the recession of 2008-09 and putting employment back to a level last seen in 1999. Every major category of jobs declined in April; payrolls even declined at food & beverage stores by 42,000 (-1.4% versus March). No surprise, the biggest payroll loser was restaurants & bars, down 5.5 million (-46.2% versus March). As a result of the drop in jobs, the unemployment rate soared to 14.7%, well higher than the peak of 10.0% in the aftermath of the 2008-09 recession and the highest level since 1940. In perspective, the unemployment rate during the Great Depression (1929-1930) was 24.7%. The jobless rate would have been even higher but the labor force fell by 6.4 million (as many people just plain gave up and stopped looking for jobs).
U-6 Unemployment Rate. For those that don’t already know, the Bureau of Labor Statistics actually has six different classifications for unemployment, ranging from U-1 to U-6. The U-3 rate is what is commonly used when the unemployment rate is reported monthly in the media. But the more expansive U-6 definition of unemployment (which includes discouraged workers who have given up looking for work, or afraid to look for work because of exposure to Covid-19, or part-timers who say they want full-time jobs), spiked up to 22.8%.
California Unemployment Rate. In California, 4.3 million people have filed for unemployment since March 12, out of a workforce of 19 million. That is a jaw-dropping unemployment rate of 22.63% in April.
Average Hourly Earnings. One oddity in the Bureau’s report was that average hourly earnings spiked up 4.7% for April and are now up 7.9% from a year ago. But that just confirms that lower-paid workers were laid-off much faster than higher paid workers (many of whom can do their jobs from home). As an economic junkie, I like to track total wages earned by all private-sector workers and that data was awful. Aggregate hours worked fell 14.9% in April and are down 15.0% from a year ago. As a result, when you multiply hours worked by average hourly earnings, you find that total earnings dropped 10.9% in April and are down 8.3% from a year ago. This means workers have less purchasing power generated by actual production (i.e. less consumer spending), versus purchasing power coming from government benefits (unmatched by production). In spite of all the horrible news, I don’t see Friday’s report as a reason to be bearish. Economists already knew the report was going to be awful; the only issue was how awful. As it turns out, payroll losses were a little less than expected and the unemployment rate came in a little lower than expected.
Nevertheless, the months ahead are going to be rough, so fasten your seatbelts. April is very likely the largest job loss of this recession. But there are further job losses ahead and the unemployment rate will go higher. However, economists still anticipate the beginning of an economic recovery starting around mid-year.
Weekly Jobless Claims. Filings for new Jobless Claims dropped from 3.8 million to 3.2 million last week, which was the lowest level since the middle of March. Typical readings before the outbreak averaged 250,000 claims per week. The US has lost over 33 million workers, more than 20% of the labor force, over the past seven weeks. (It should be noted that differences in the data collection periods for the weekly reports on Jobless Claims and for the monthly employment reports may lead to results that aren’t always directly comparable.)
Treasury Efforts. The Treasury Department announced that it will be doing a record amount of borrowing this quarter to fund government spending, which has increased due to relief efforts to help offset the impact of the coronavirus ($3.3 trillion and counting). It also will be extending the average duration of government debt and will be launching a new 20-year bond on May 20.
Foreclosures. Despite the Covid-19 moratorium, there were still 322 non-judicial foreclosures (notices of default) initiated in Los Angeles County in April. Notices of trustee’s sale were, as expected, much smaller, at only 182 in April. Even smaller, the number of properties that actually went to foreclosure sale were only 27 (smaller than April of last year, and most certainly, smaller than the months ahead).
Mortgage Rates. Rates moved to record lows in the past week as negative economic news continued to dominate the headlines. Freddie Mac announced that the 30-year fixed rate moved down from 3.33% to 3.23%. The average for a 15-year loan decreased to 2.77% and the average for 5-year ARMs fell to 3.14%. A year ago, 30-year fixed rates averaged 4.14%, more than 0.75% higher than today. These low rates are driving higher refinance activity and have modestly helped improved purchase demand from their extremely low levels in mid-April. While many people are benefiting from the low rates, it’s important to remember that not all people are able to take advantage of them given the current pandemic.
Pizza Delivery. But not everyone is suffering in this pandemic. Papa John reports that April was the best month in the company’s history for pizza delivery. Deliveries jumped 25% among loyalty members and over one million new and returning customers ordered in. Sales accelerated 26.9% overall in April under stay-at-home orders. Papa John was quick to offer “contactless delivery,” a perk many customers obviously appreciate in the midst of a pandemic. Most ordered pizza? Pepperoni, of course.
This week. Looking ahead, the coronavirus will remain the main focus. Real estate investors will continue to watch for news about medical advances, vaccines, Fed actions, government stimulus programs, and plans for reopening the economy. Beyond that, the Consumer Price Index (“CPI”) will come out tomorrow. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Friday. Since consumer spending accounts for about 70% of all economic activity in the US, the retail sales component is a key indicator of the strength of our economy.
