The Non-Farm Payrolls (NFP) report is due later today, and it has great importance in interpreting the overall impact of COVID-19 on the American economy. As always, it is healthy to keep an unbiased view and remember that the jobs data is a lagging indicator in a business cycle.
Also, traders cannot form a true picture of the NFP release without reading the full report released by the Bureau of Labor Statistics. Together with the actual numbers, other data is equally important when interpreting the labor market – average hourly earnings, unemployment rate, participation rate, number of discouraged workers, and so on.
Challenges for the US Labor Market
The main number is expected to further decline in May, sending the unemployment rate towards 20%. Many will have to look at today’s report with special care, especially when interpreting wage growth. The rate may be artificially boosted by low-paying sectors that earned more during lockdown than otherwise.
Earlier this week, the ADP private business payrolls took markets by surprise by coming out way better than expected. If this is any indication about today’s NFP numbers, then February might remain the peak of the crisis so far.
Another encouraging sign appeared yesterday. Another 1.9 million unemployment claims were filed last week – while a terrible number by all metrics, it is for the first time in ten weeks’ time when the number has fallen below two million. Moreover, the continuing claims, on the other hand, rebounded to 14.8%. All in all, a mixed picture from the initial jobless claims/continuing claims weekly report intended to prepare traders and investors for the big NFP release 24 hours later.
The real danger to this job market, though, lies somewhere else. As the saying goes, the devil hides in the details. In the lack of a V-shaped economic recovery (not to be confused by the stock market V-shaped recovery that already took place), the next big risk for the labor market is that job losses become permanent and that the economic crisis increasingly affects higher-paid workers.
The problem here is that if job losses affect white-collar workers, the unemployment benefits will not count much of the income loss. Also, the difficulty of relocating to an equally paid job makes it likely for these job losses, if rising, to become permanent and more problematic than the ones in the opposite extreme.