Via Financial Times

The US economy shed 701,000 jobs in early March and the unemployment rate jumped to 4.4 per cent, the highest in more than two-and-a-half years, reflecting the early-stage damage from the coronavirus pandemic on the American labour market.

Long the bright spot of the US economic expansion, the labour market contracted last month for the first time since September 2010 and by the most since March 2009.

The performance is far worse than expected. Economists had forecast a loss of 100,000 jobs, from the 275,000 positions added in February. The unemployment rate rose from February’s more than 50-year low of 3.5 per cent, the largest month-to-month jump since 1975. Analysts had predicted a more modest rise to 3.8 per cent.

The survey period for non-farm payrolls ended on March 12. Timelier data issued on Thursday have already given a snapshot of the dire state of the US labour market. More than 10m people have filed for unemployment benefits in the past fortnight, with data showing a record 6.6m filed for jobless aid for the first time last week.

“We thought that this report would understate the economic damage in the economy,” Martha Gimbel, a labour economist at Schmidt Futures, said. “There’s no reason to think it isn’t understating the economic damage. So what that means is that 700,000 jobs lost at the beginning of this is where we are. That’s unfathomable.”

Column chart of Monthly change in US nonfarm payrolls (000s) showing Job losses in March end 113-month streak of US payroll gains

Ms Gimbel noted that the sheer number of losses in the service sector early in the month indicated that the US would see comparable losses in manufacturing and other industries, as suggested by state reports on unemployment insurance from later in March.

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The labour department said that data from the March survey “broadly reflect” some of the early effects of the coronavirus pandemic on the labour market.

“We cannot precisely quantify the effects of the pandemic on the job market in March. However, it is clear that the decrease in employment and hours and the increase in unemployment can be ascribed to effects of the illness and efforts to contain the virus.”

The leisure and hospitality industries bore the brunt of the lay-offs, with 459,000 jobs lost mainly in restaurants and bars, the labour department said, while “notable declines also occurred in healthcare and social assistance, professional and business services, retail trade, and construction.” 

“The changes in these measures reflect the effects of the coronavirus . . . and efforts to contain it,” the US labour department said.

Line chart of (%) showing US unemployment rate rises in March

Shares on Wall Street were down 0.9 per cent in choppy morning trading after the data. Government bonds were weaker, with the yield on the benchmark 10-year US Treasury up 0.05 percentage points to 0.58 per cent.

This followed the release of European data that showed service sector activity crashed across the continent in March during coronavirus lockdowns. A series of widely watched business surveys recorded their largest-ever monthly falls to levels that suggest a severe economic contraction is under way. 

None of the leading European economies was immune to the economic pain. Italy’s purchasing managers’ index fell to levels far below the worst point in the financial crisis 11 years ago. Spain, France and Germany all recorded the lowest reading in their respective surveys since they started more than 20 years ago.

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In the US, data from the Institute for Supply Management showed the services sector grew in March at its slowest pace since 2016. The headline index dropped to 52.5 from 57.3 in February, remaining above the threshold of 50 that separates expansion from contraction and better than the reading of 45 economists had forecast.

Economists noted, however, that the gauge may have been distorted by the supplier deliveries sub-index. Although this component jumped in March, higher readings indicate longer delivery times.

“The rise in the supplier deliveries time represents supply-side obstacles, not a sign of robust activity. Indeed, business activity and employment both plunged while new orders suggest weaker activity in the pipeline,” Oren Klachkin from Oxford Economics said.