The “report from hell”
The dreaded April jobs report came across the wire this week and it’s the worst report seen by industry leaders that have been in this business for decades. The official unemployment number for April came in at 14.7%, which is the highest since the 1930s, and reflects 20.5m lost jobs in one month. Effectively every industry across the board was impacted, even healthcare, which lost 1.5m jobs in the midst of the worst health crisis in US history. If furloughed Americans are included in the number, that unemployment actually jumps to 19.7%. This is the type of stuff they’ll be writing about in the finance and economics textbooks in the future.
Moral of the story: The unemployment claims keep coming in by the millions each week (last week’s initial jobless claims were 3.2m, bringing the total to above 33m) and while many of these job losses might rebound once the economy starts opening up, we’re going to see a structural change in the employment levels for some of the hardest hit industries like hospitality, leisure, and entertainment – I can’t imagine there will be many concerts happening or baseball games with stadiums full of crowds anytime soon. In the meanwhile, the unemployment benefits being distributed by the government right now through the CARES Act are so generous that many people are making more on unemployment than they were before while busting their butts at two jobs. This creates a massive moral hazard problem in the labor market, and it’s a slippery slope. These benefits run out this summer and while I hope those who truly need the help receive it, I also really hope we figure out a way to promote a return to work for those currently unemployed. I’ll step off my soapbox now.
The American standard of living
Productivity fell by 2.5% in the first quarter, which is the largest drop we’ve seen since the last quarter of 2015. Some pieces within the overall productivity measure fell even more drastically. Output fell by 6.2%, which is the steepest decline since 2009. Hours worked fell by 3.8%, which is actually the largest drop since the Great Recession.
Moral of the story: This crisis is bound to damage the economy’s productivity capacity. Productivity is the most fundamental factor determining the standard of living. In effect, when you increase productivity, supply increases, which decreases the prices of goods/services and increases consumers’ purchasing power – it can lift people out of poverty and afford them the time to focus their efforts beyond just survival. Obviously, this goes backward when productivity decreases. When 33m people are out of jobs, you can see why lower productivity can quickly become an issue.
Woodstock of Capitalism
Taking a break from the regularly scheduled programing here, I just wanted to highlight a few things from Berkshire Hathaway’s annual shareholder meeting last week – it was a 4.5-hour live stream from legendary investor Warren Buffett who conveyed these main messages:
- Never bet against America – despite the choppy waters we’re navigating right now, Americans have a history of emerging through crises and rebuilding to newer heights.
- Selling down airlines – while Buffett pointed to several different reasons behind the large sales in airline companies, he believes the world has fundamentally changed through this crisis and there may be no return to “business as usual” here. I’ve honestly been thinking of how to best utilize all those miles on my credit card…
- The Fed has done well – Buffett praised the FOMC and Chair Powell for the unprecedented speed and determination with which they acted to prop up the economy.