The terrible and far-reaching toll of the coronavirus pandemic has had a profound effect on macroeconomic news such as subdued GDP growth rates, historically low bond yields, a substantial decrease in production and manufacturing statistics to name a few. But no other factor is reported on and critically analysed as the unemployment rate as this is perhaps the most useful lagging indicator that shows the true and devastating results of the current pandemic on businesses, declining economic health and ultimately everyday workers.
The U.S. unemployment rate spiked to 14.7% in April, which is the highest level experienced since the Great Depression where unemployment rates peaked at 24.9% in 1933. This comes as no surprise as many businesses shut down or started cutting costs to ultimately save and increase the longevity of their businesses. Recent figures from the Labor Department show that more than 20 million people unexpectedly lost their jobs. To put this in perspective, the previous month alone has wiped out any employment gains made in the last ten years and forecasts on the labour market show that more workers will inevitably lose their jobs with Goldman Sachs predicting that the unemployment rate in the U.S. will peak at 25%.
It is also interesting to note that the real jobless rate, which measures the percentage of Americans who want a job but are not motivated to find one, increased to 22.8% in April and could potentially surge to 35%. As parts of the U.S. start to reopen throughout the year it still might not be enough to bring the unemployment rate to pre-COVID levels. Realistically, it might take a few years for the pre-crisis levels to be reached with economists predicting unemployment to stay around 10% by the end of 2020 and 8% by the end of 2021.
Like the U.S., Australia’s labour statistics have shown a steep monthly rise with unemployment rising 1 percentage point to 6.2% for April compared to economists’ expectations of 8.3%. Additional data shows that nearly 600,000 people saw the termination of their employment with a further 600,000 saw a reduction in their working hours. The pandemic has seen Australia’s jobless rate reach the highest level since September 2015 as further cuts are highly likely in the coming months. The ABS also stated that 20% of the people employed in March were either laid off or had a reduction in their hours between March to April.
It is imperative to note that whilst the unemployment rate is 6.2% versus economists’ higher expectations, this lower actual rate can be attributed to the jobkeeper payments. People that have qualified to receive these payments are still classified as employed even if they have been stood down from their employer. Hence, the severity of the unemployment rate is understated based on this quirk. In fact, the real unemployment rate is likely significantly higher than 6.2% with the treasury forecasting that unemployment will peak at 10%. Data also reveals that more than 6 million Australians are on the jobkeeper wage subsidy with an additional million workers claiming jobseeker unemployment benefits.
With the first steps of reopening the economy recently initiated in both the U.S. and Australia, one could only hope that the escalation of unemployment figures will ease off and provide a catalyst to return to normalcy.
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