Zillow Market Pulse: April 3, 2020

April 3, 2020

The March jobs report was the latest in a string of depressing data releases, and even so likely underestimates the damage still to come. Typically lower-paying sectors suffered the most damage, with leisure and hospitality taking the biggest blow. And activity in the U.S. service sector – about 80% of the economy – is now firmly in decline.

• U.S. employers shed 701,000 jobs in March

  • The unemployment rate rose 0.9 percentage points, to 4.4%.
  • The report was far worse than expected, and likely underestimates the true damage done to the labor market.

• Generally lower-paying roles bore initial brunt of losses

  • 81% of job losses were in typically lower-paying industries.
  • The leisure and hospitality sector lost 459,000 jobs in March, 28.2% of all employment within the industry. The mining and logging sector lost 11.1% of all employment.

• The U.S. service sector is officially in decline

  • The ISM Index for service sector activity slowed 9.8 points in March from February, to 48, indicating contraction.
  • The IHS Markit U.S. Services Index fell 9.6 points to 39.8.

So what?

Even though the official March employment report can fairly be considered old news at this point, that shouldn't take away from its magnitude and impact. Expectations were for a loss of about 100,000 jobs. Instead, the economy shed more than 700,000 jobs last month, yet another example of brutal labor market data blowing past even the most pessimistic expectations. Following yesterday's unexpectedly massive surge in unemployment claims, the huge job losses were a sign that many companies stopped hiring well before much of the nation's business essentially shut down. Perhaps unsurprisingly, the losses were felt most strongly in the leisure and hospitality sectors, which lost a staggering 459,000 jobs in March, or 28.2% of the entire sector. Mining and logging lost 11.1% of its jobs, likely in part because of the dramatic decline in oil prices — and the shuttering of dozens of oil and gas wells that followed — that has coincided with the pandemic's early stages. More than 80% of the job losses were in typically lower-paying fields, stoking fears over the ability of millions of workers to meet short-term obligations and prompting calls for more federal legislation to get cash into the hands of those who need it most.  

But as bad as it was, sadly, today's report is probably the best news on the labor market that we'll receive for a while. Because while today's numbers were undeniably terrible, they also very likely represent a gross understatement of the true damage that's already been done in the labor market and are probably only a prelude to much worse reports to come. Today's data were drawn from a survey that ended March 14, before mass business closures began nationwide. Recent unemployment claims data may be a better indicator of what the future will look like, and offer interesting perspective. In February, there were about 165 million people in the U.S. labor force, 159 million of which were actually employed, leaving slack of about 6 million workers. In the last week alone, more than 6.5 million people filed for unemployment insurance. Taken together, this suggests that the unemployment rate – which rose in by more in March than in any month since January 1975 – is poised for more sharp increases in the months ahead.

The headline service-sector reading from March wasn't as bad as some expected, but make no mistake: Activity in the services industries has slowed considerably in recent weeks. Much like it's relative that measures the manufacturing sector, the headline ISM Services index was buoyed in March due to constraints in supply chains. Normally, this might suggest a surge in healthy consumer demand, but nowadays it is more indicative of straining global distribution networks and, perhaps, people hoarding some materials. The ISM non-manufacturing index of business activity fell to its lowest reading since July 2009, and the IHS Markit U.S. services index fell by more in one month than it ever has. And, again, the worst is likely still to come. Responses to the IHS survey were collected between March 12th and March 27th, before some state-level stay-at-home measures were implemented.

 

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