US sheds most jobs in a decade, ending record hiring streak
A record-long streak of US job growth ended suddenly in March after nearly a decade as employers slashed hundreds of thousands of jobs because of the viral outbreak that has all but shut down the United States economy.
The unemployment rate jumped to 4.4 per cent from a 50-year low of 3.5 per cent.
The job loss of 701,000 reported on Friday by the government – the worst since the depths of the Great Recession in 2009 – is still just a small indication of what is to come. For the April jobs report that will be released in early May, economists expect as many as a record 20 million losses and an unemployment rate of around 15 per cent, the highest since the 1930s.
The enormous magnitude of the job cuts is inflicting far-reaching damage on economies in the United States and abroad, which are widely believed to be sinking into severe recessions. As rising numbers of people lose jobs – or fear they will – consumer spending is shrinking. That pullback in spending, which is the primary driver of the economy, is intensifying pressure on those businesses that are still operating.
Economists are holding out hope that an extraordinary series of rescue actions from Congress and the Federal Reserve will help stabilise the US economy in the months ahead. The key goals of Congress’ just-enacted US$2.2 trillion relief package are to quickly put cash in people’s hands and incentivise companies to avoid job cuts or quickly recall laid-off employees.
The package includes an extra US$600 a week in unemployment benefits on top of the usual state payments and will ideally enable the millions of newly jobless to pay their rent and other bills. But it won’t make up for the vast array of spending that Americans typically engage in that has now been lost – from eating out and paying for gym memberships to buying new furniture, autos, and electronic gadgets. Indeed, Oxford Economics says that for the April-June quarter, that pullback will likely cause the sharpest quarterly drop in consumer spending on record.
Katharine Abraham, an economist at the University of Maryland, said that if the extra aid manages to help many of the unemployed avoid building up excessive debt, “when businesses open back up … they should be able to spend money”.
Still, even factoring in the government’s intervention, Joel Prakken, chief US economist at IHS Markit, predicts that the economy will sharply contract in the April-June quarter – by a 26.5 per cent annual rate, the worst on records dating to just after World War II.
The job losses during March were likely even larger than what was reported on Friday because the government surveyed employers before the heaviest lay-offs hit in the past two weeks. Nearly 10 million Americans applied for unemployment benefits in the final two weeks of March, far exceeding the figure for any corresponding period on record. Those lay-offs will be reflected in the jobs report for April.
“This was an ugly jobs report, showing that the pain in the economy started in early March, well before the spike in the weekly initial jobless claims data,” said Joseph Song, an economist at Bank of America Securities. “It is going to get much worse in coming reports.”
Brad Hershbein, senior economist at the Upjohn Institute for Employment Research, said that last month’s job loss likely reflected nervousness among businesses that had cut back on hiring even before the flood of lay-offs.
One sign of how painfully deep the job losses will likely prove to be: During its nearly decade-long hiring streak, the US economy added 22.8 million jobs. Economists expect the April jobs report being released in early May to show that all those jobs could have been lost.
Lower-income service workers bore the brunt of the job cuts in March, with restaurants, hotels, and casinos accounting for roughly two-thirds of them – a loss of 459,000 jobs. Retailers shed 46,000.
Yet the lay-offs have also begun to creep into many other corners of the economy. Doctor’s offices sliced 12,000 jobs, the most on records dating to 1972. Law firms cut 1,700. Banks and real estate companies also shed jobs. The nearly full-point increase in the unemployment rate from February to March was the sharpest monthly rise since 1975.
Many employers have cut hours for some staffers. The number of part-time employees who would prefer full-time work jumped by one-third in March to 5.8 million.
A key determinant of the economy’s future will be whether businesses can survive the shutdown and quickly rehire those workers who consider themselves to be temporarily laid off. If so, that would help the economy snap back and avoid the type of weak recovery that followed the past three downturns.
But if the virus outbreak forces businesses to stay closed into the late summer, many may go bankrupt or won’t have the money to rehire their old employees. That would mean that many workers who now consider themselves on temporary lay-off could lose their jobs.