The US shed 20.5 million jobs, and the unemployment rate surged to 14.7 percent in April, according to preliminary data released by the US Department of Labor Friday morning — worse than any unemployment rate on record in modern data, and higher than anything experienced since the Great Depression.
To make matters even worse, this figure almost certainly understates the true situation. April unemployment numbers are released in May based on surveys that took place during the week that contained April 12. And since April 12 in the US, things have only gotten worse: The initial unemployment insurance claims figures released in the final two weeks of April indicate that the labor market continued to deteriorate at a rapid pace, albeit slightly less rapidly than in the first weeks.
Ernie Tedeschi, a labor market economist, projected Thursday based on real-time data that the current unemployment rate is actually 20 percent. And in the jobs report, the Bureau of Labor Statistics said it believes murky classification of temporary unemployment in the household survey caused the official number to be about 5 percentage points lower.
Further complicating things, for now, enhanced unemployment insurance benefits mean that many workers in the bottom half of the income distribution are likely getting more money from UI than they would have from working. That means the hit to incomes and consumer spending from joblessness is considerably less than it would otherwise be during a period of double-digit unemployment.
But many employers have cut salaries and benefits even for workers who haven’t been laid off, so there are pockets of income loss that are worse than what you’d expect from the unemployment numbers. Others may still be working in restaurants or hotels but dealing with a precipitous decline in tips as fewer customers come in the door.
The big picture: The economy is at grave risk of experiencing big secondary and tertiary economic impacts separate from the hit to the labor market caused by the virus itself.
When people don’t have money, they don’t buy new cars or new appliances. They don’t remodel kitchens or buy restaurant meals. When incomes drop, state and local tax revenue drops, forcing layoffs and furloughs of teachers and firefighters who in turn need to cut back on their spending.
In normal times, the Federal Reserve would try to counteract this by cutting interest rates to a low level and hoping to spark a boom in investment. But the Fed already cut rates all the way down to zero back in March. To dig out of this hole will require more than a solution to the public health crisis, it’s going to take some mix of creative thinking from central bankers and aggressive fiscal stimulus from Congress.