Remember last month, when the jobs report was bad but not apocalyptic? Those were the days. The most recent jobs report is a stunning picture of how the pandemic has reshaped the country’s labor market. Overall, 20.5 million fewer people were employed last month than in March. And the unemployment rate has skyrocketed to 14.7 percent — by far the worst we’ve seen in more than seven decades of economic data.
But the speed of the crisis also means that these numbers are already out of date. The jobs report is based on surveys of businesses and households taken during the middle of April, but the economic situation likely worsened as the month went on. And key metrics, like the unemployment rate, aren’t capturing all the people who are actually out of work right now. According to this month’s report, millions of workers were counted as employed even though they were absent from work for an unspecified reason — and if they had been counted as unemployed on a temporary layoff, the unemployment rate would have been 5 percentage points higher. In other words, as catastrophic as this report might seem, it almost certainly understates the pandemic’s full economic devastation.
To be clear, that’s not the fault of the researchers at the Bureau of Labor Statistics who put the report together. Our economic data just wasn’t designed for a moment where entire sectors of the economy shut down pretty much overnight, leaving millions of people without jobs. “I think of our economic indicators as being a kind of a finely tuned speedometer that says, ‘Are we a little over the speed limit or a little under?’” said Matt McDonald, a partner at the consulting firm Hamilton Place Strategies who writes a monthly analysis of the jobs report. “And right now it’s like we just pulled the emergency brake on the highway.”
That doesn’t mean the report is useless or wrong. But making sense of the numbers — and what they mean for our ability to recover from this mess — is going to take a little more work than usual. Here’s what to bear in mind as you read coverage of the jobs report (or dive into the nitty-gritty yourself) that can help you understand just how bad these numbers are, and what they mean for how the recession could play out.
Headline numbers may understate the damage
This month, there are good reasons to dig deeper into the report. There’s always a significant amount of uncertainty in one of the topline numbers — the 20.5 million jobs that were lost — but the scale of the damage this month means that this month’s estimate could be off by tens or even hundreds of thousands of jobs. Take the initial revision for payroll losses in March. Last month, the BLS reported that 701,000 jobs were lost. In this month’s report, though, it’s adjusted that to 870,000. And the April job losses are much, much larger, which means this month’s report could be underestimating the magnitude of the damage by a significant amount.
The one thing we know for sure is that the unemployment rate is historically high. The government has been tracking this number for more than 70 years, and up till now, the peaks were 10.8 percent in 1982 and 10.0 percent in 2009. For context, economic historians estimate that during the Great Depression, the unemployment rate hit a peak of about 25 percent.
The real number may actually be closer to that Great Depression peak, because by this metric, only people without jobs who have been actively looking for one are considered unemployed. In normal times, that’s already a bit of an issue because it means frustrated job seekers who have given up on finding something aren’t counted. Now, the problem is even bigger because so many workers are being encouraged to stay home to combat the coronavirus. Others might not be job-hunting because they believe there’s no work to be had.
“Job search is going to be tough when it’s a public health risk to be in contact with people and whole sectors of the economy is effectively shut down,” said Nick Bunker, a labor economist at the hiring site Indeed. “So lots of people who are out of work are probably not going to be included in the unemployment rate.”
Then there’s the possibility that some people may have been counted as employed even though it might be more accurate to say they’re temporarily out of work. The misclassification may have happened because of the way workers are surveyed — if they say they were absent from work during the entire week that’s referenced in the survey, interviewers follow up and ask why. Usually, the reasons fall into a standard set of buckets — vacation, childcare responsibilities, illness. But the number of workers who said they were absent from work for “other reasons” skyrocketed once the pandemic started, indicating that some people who had actually been furloughed may have misunderstood the question and answered in a way that indicated they were still employed.
This was a problem the BLS ran into in March, and again in April. In March, the researchers estimated that about 1.4 million people may have been misclassified as employed when they were actually temporarily out of work due to the pandemic; this month, it’s a whopping 7.5 million people. According to the BLS, the April unemployment rate would have been almost 5 percentage points higher if these people were included.