The March Employment Report clearly shows the beginning of the labor market hit from the coronavirus. The question is how much more labor market pain is in the cards? If the high Street estimates of a 24% (q/q, saar) plunge in Q219 Real GDP are correct, then the 701k m/m drop in March Payrolls is only the tip of the iceberg.
Total Hours Worked in March were 2.3% (annualized) below the Q120 average. They have a long way to go to be consistent with -24% Real GDP Growth, say -20% (depends on how far productivity drops). Assuming the Nonfarm Average Workweek stays at March's 34.2 Hours -- lower than the recent 34.4 Hour trend -- or falls further to 34.0 Hours, then Payrolls would need to fall by 7.0-8.0 Mn to be consistent with -24% GDP Growth.
The composition of the March Payroll drop is consistent with anecdotal evidence. Jobs at hotels and restaurants accounted for more than half the Total drop. Curiously, health care jobs fell sharply, as well. Almost all other sectors experienced notable job declines, too.
The Household Survey (used to calculate the Unemployment Rate) showed a greater impact from the virus than did the Establishment Survey (used to construct Payrolls). The Household Survey shows that Civilian Employment plunged 3.0 Mn people while Labor Force dropped by 1.6 Mn. The Unemployment jumped to 4.4% from 3.5% in February. The Rate should rise to 10-15% if Q220 GDP Growth drops 24%, based on the historical relationship.
The 0.4% m/m increase in March Average Hourly Earnings likely reflects the bulk of job losses being among lower-paid workers. There was a compositional shift. Calendar considerations argued for 0.1-0.2%. If it were a compositional shift, the jump is not inflationary.
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