Several important reports on the U.S. labor market were released this week. For example, total nonfarm employment in America fell by 701K payrolls in March, according to data out this morning from the Bureau of Labor Statistics. That was the largest decline since the Great Recession and ended the record 113 month streak of consecutive job growth. Further, the official unemployment rate (U-3) jumped from February’s near half-century low of 3.5 percent to 4.4 percent in March, a two-and-a-half year high. The headline job loss was much larger than expected, but the silver lining is that this implies steps to “flatten the curve” began sooner than anticipated.
However, since the shelter-in-place orders and other COVID-19 containment efforts did not really ramp up until the second half of March, the above figures do not fully capture the extent of the carnage that has been occurring in the labor market (will have to wait for the April data). This week’s reports, though, can still shed light on which businesses are bearing the brunt of the coronavirus shock at the moment. Some of the larger job losses, for instance, have occurred in the construction, automotive, energy, and retail industries in March. Similarly, more detailed data out yesterday from Challenger, Gray & Christmas showed that layoffs were especially bad in the entertainment and leisure sector.
This is not surprising because many of these firms have been deemed “non-essential” or indirectly made to close shop due to a dramatic reduction in foot traffic resulting from the lockdown protocols. The Challenger data also revealed that certain industries announced a surge in hiring last month. Such businesses include grocery stores and other companies that provide “essential” goods and services to the millions of Americans forced to spend the bulk of the COVID-19 outbreak at home. What is more telling from this list of hiring firms (see above) is that it is comprised of large corporations with the financial means to better weather an economic downturn and soak up the Americans let go recently by small- and medium-sized businesses.
Indeed, due to the efforts to mitigate the spread of the coronavirus, countless SMBs have had to shudder their operations or at the very least take steps to drastically cut costs, even if just temporarily. A new Small Business Administration program will provide some relief but it has arguably arrived too late because many SMBs have already significantly reduced the size of their staffs. Just look at the data from ADP released earlier this week which showed that payrolls at firms with 1-49 workers fell by 90K in March, the largest decline since the Great Recession. At the same time companies with at least 500 employees added 56K payrolls and accounted for roughly 9 out of every 10 private-sector jobs created last month.
This dichotomy actually started to appear several years ago due in part to the rapidly rising role of technology in the modern workplace, along with the growing challenge for small employers to remain competitive when it comes to their wage and benefits offerings. Moreover, what all of this week’s data releases suggest is that even if the economic hit from the coronavirus ends in the not too distant future, a lasting effect could still be an acceleration in some of the pre-existing labor market trends, particularly many small businesses becoming even smaller, and in turn big corporations accounting for much larger share of U.S. employment.
Sources: Econoday, U.S. DoL, CG&C, ADP, FRBSL