Pandemic Job Losses Pile Up

Apocalyptic, a natural catastrophe, a generation-defining moment are just some of the words or terms that describe the economy and the labor market right now. The news could get a lot worse in the coming months.

In the two weeks ending March 28th, a staggering 10 million Americans filed for unemployment, with millions likely to do the same over the next weeks and months. The Labor Department (DOL) followed that news with the release of the monthly employment report for March, which showed that 701,000 jobs vanished, pushing up the number of unemployed people by 1.4 million to 7.1 million.

The unemployment rate jumped from a 50-year low of 3.5 percent to 4.4 percent, the largest month-over-month increase since January 1975, and the broader rate, which includes part-timers and those who are marginally attached, increased to 8.7 percent. We will likely look back at these numbers and understand why economist Joel Naroff said “we are just seeing the tip of the iceberg when it comes to the collapse of the labor market.”

Diane Swonk, Chief Economist of Grant Thornton forecasts that job losses could get more than twenty times worse in April, which would mean that the U.S. economy would “lose more than twice as many jobs as we lost during the Great Recession during the first two months of this crisis alone. Unemployment will soar into the double digits…there is no scale to measure the misery associated with COVID-19 on all fronts.”

The March report, which snapped a record 113-month stretch of job creation, was far worse than expected, because most economists and analysts had believed that because the DOL accumulates data early in the month (March 8-14), the numbers would not yet demonstrate the gravity of the situation. They were wrong. In fact, I have been talking to a lot of economists and the views have quickly gone from “we hope this is a two-quarter, bad recession” to “this is going to be worse than the Great Recession and rival the Great Depression.”

“Never in the history of the IMF have we witnessed the world economy come to a standstill,” said Kristalina Georgieva, managing director of the International Monetary Fund. Kenneth S. Rogoff, Professor of Economics at Harvard University agreed, and told me “this is more like 1929 and the 1930s, which hit the whole world,” and Mohamed El-Erian chief economic adviser at Allianz, said in an early morning email exchange that this “is a generation-defining moment.”

Researchers at the Federal Reserve Bank of St. Louis outlined the dire situation earlier in the week. They noted that of the nearly 165 million people in the civilian labor force, about 40 percent work in jobs “that are at high risk of layoff. These include occupations in sales, production, and food preparation and services, among others.” If all of these at risk were to get laid off, which would be a pretty grim assumption, it would result in 47 million unemployed and a staggering 32.1 percent unemployment rate due to the coronavirus outbreak.

While those numbers may be too high, plenty of other economists have predicted that the rate could spike to 10, 15 or even 20 percent due to the pandemic-induced recession, with estimates of job losses spiking into the tens of millions, as restaurants, bars, transportation, leisure and hospitality and most recently, retail, take extreme measures to survive.

Last week Macy’s (which also owns Bloomingdales), Kohl’s, GAP, L Brands (parent of Ann Taylor, Victoria’s Secret and Lane Bryant, among others) and newer entrants like Rent the Runway all announced massive furloughs or layoffs, and some have drawn down loans, canceled orders, stopped paying rent, and/or halted dividend payments to stockholders in a concerted effort to survive the financial impact of Coronavirus.

With more than 630,000 stores closed in the U.S. and an anticipated $430 billion of lost revenue over 90 days, some brick and mortar retailers are facing a grim reality. We don't know which ones, but some won't survive. Certainly those that were already under pressure and contending with mounting debt loads, like Nieman-Marcus, Nordstrom, J Crew and JC Penney, could succumb to the virus, which has accelerated a trend that we have seen over the past few years. Last year, there were over 9,300 store closings (up 59 percent from 2018, (according to Coresight Research) and 23 retail bankruptcies (according to CB Insights), and those occurred as the economy was doing well.

All of these pressures lead economists to predict a historically bad period for the U.S. economy. Swonk believes that the drop in GDP growth this year will represent “the largest annual contraction in growth since millions of soldiers returned to the U.S. without jobs following the end of WW-II in 1946.” But as New York Times columnist Paul Krugman notes, the “GDP decline isn’t the problem, since it’s a necessary counterpart of the social distancing we need to be doing,” but we have “to provide enough help to those afflicted by this crisis.”

That help does not seem to be coming quickly enough. On Friday, SBA loans were supposed to start flowing to small businesses, but many would be-borrowers were thwarted at the big banks that were supposed to distribute the money. Financial institutions seemed unprepared for the onslaught of applications, which is bad news for struggling owners. 

Time is ticking for these firms, according to according to a poll conducted March 25 to 28 by the U.S. Chamber of Commerce and MetLife. 24 percent of small businesses say they will close permanently within two months or less due to the economic fallout of the coronavirus pandemic, eleven percent say they will close within one month and 24 percent of small businesses are already shut down on a temporary basis.

If you need help navigating the financial part of this national emergency, download the Jill on Money podcast, where I am providing daily updates on the situation. As always, you can send e-mails to me here.