Yesterday we received the worst employment report in history. But what does it portend for the future? Is there a silver lining? These are obviously unique circumstances relative to previous recessions.
In case you didn’t see the news yesterday, 20.5 million people lost their job in April. Over the last couple months, we’ve lost about 33 million jobs. That is about 10% of the total population.
Here’s a chart to put April’s job losses in context. April made every other recession and crisis going back to World War II look like a tiny blip.
April’s job losses bring the unemployment rate up to 14.7% from 3.5% in February.
Another way to look at the employment picture is to look at the employment-population ratio, which is now at just 51.3%. In other words, just half the U.S. population is not working right now.
Bloomberg journalist, Lisa Abramowicz, shared that in a single month we’ve lost about as many jobs as were lost in every recession COMBINED dating back to the late-50s.
The silver lining of all this, and likely the reason the market continues to hang in there, is that the cause of the grinding halt was obviously unique relative to prior recessions. The cause was mandated lockdowns by various states around the nation as opposed to some “organic” slowdown or financial crisis. That fact, combined with the steep nature of the economic decline, could imply a sharp recovery as well as states start reversing course and opening back up. I believe this is the hope the market is clinging on to.
Certainly, we’ll see a rush of jobs in various regions as they reopen. However, it’s not likely ALL the lost jobs come back quickly. It’s quite possible many of these jobs may not come back for years as a result of (1) poorer financial health of households and corporations, (2) consolidation of roles in various industries, (3) greater efficiencies in workplace, (4) cautiousness about hiring, (5) lucrative unemployment benefits, (6) dragged out re-opening from certain States, and (7), tragically, because many small businesses are going out of business altogether.
In other words, it is not likely we’ll simply resume a 3.5% unemployment rate and prior economic activity that existed before the pandemic.
Therefore, a continued measured approach with an emphasis on risk management continues to be the prudent investment strategy. As always, investment strategy is informed by my clients’ financial and emotional capacity for risk.
U.S. stock market valuations remain near historical extremes. It is my view that the time to get aggressive again will be at the bottom of the valuation cycle, not near the peak of the valuation cycle.