U.S. labor market: Furloughs and fragility

Nationwide closures, stay-at-home orders, and social distancing guidelines in response to the virus outbreak have pushed the U.S. unemployment rate to the highest level post-World War II. Even with this historic collapse, job losses are likely worse than the headline figures suggest.

Workers who are no longer in the labor force, but want a job have nearly doubled. Further, many on temporary Covid-19 related absence were not classified as unemployed, which further understates the extreme impacts of stay-at-home orders. The Labor Department estimates that true unemployment is likely 5% higher. With the headline unemployment rate at 14.7% and continued uncertainty of how and when economic activity will normalize, the unemployment outlook is bleak at the moment though there are some glimmers of optimism.

Looking ahead, we believe that a significant proportion of these will workers will have jobs once economic activity reconvenes, but the full damage to the labor market will take years to undue.

Thus far, low-wage workers are the most impacted as many of their jobs cannot be performed remotely. The extreme disparity in layoffs is reflected in the 7% increase in hourly wages since last month as the proportion of lower wage workers in the overall workforce shrunk. Furthermore, the wave of job loss has proved that no demographic or industry is insulated from this collapse. April’s report shows manufacturing, leisure/hospitality, government, retail trade, and education/health care cut millions of jobs.

The April jobs report allows for some estimation of specific Covid-19 impacts by looking at the growth in those classified as temporarily laid off. A full 78% of newly laid-off workers considered their status as temporarily laid-off with the expectation that they would return to their previous job. We do expect that a decent portion of these temporary lay-offs will reverse as states ease stay-at-home orders. However, the extent of the rehiring is quite uncertain and reliant upon companies remaining solvent during the stay-at-home orders and then demand returning swiftly once the orders are lifted. The bounce-back in unemployment will likely vary widely by industry. While education and health care may normalize quickly, leisure and hospitality, which has experienced over 8 million job losses, is vulnerable to long-term social distancing guidelines or changes in consumer behavior. In the short-term, job losses may continue to rise until the pace of economic reopening picks up.

Composition of the labor market

Source: Bureau of Labor Statistics

Classification Number of individuals

Permanent job losers


Not in labor force, want a job


Temporary layoff


Part-time, but prefer full time


Looking ahead, persistent stabilization in initial unemployment claims across the U.S. will be the first sign that April was the trough for the labor market. States have begun to exhibit slowing initial jobless claims, but continuing claims remain high, even in states that are beginning to open nonessential businesses. Forecasts from the Congressional Budget Office show the unemployment rate peaking in the third quarter of 2020 but remaining at 11% at the end of 2020 and 10% in 2021.

While the near-term employment picture should begin to stabilize as businesses reopen, these CBO projections underscore the likelihood of more lasting damage to the labor market. Certain companies will not reopen – or at least not in the prior size and scale – which will cause the unemployment rate to remain stubbornly high. However, once a vaccine is widely available and social distancing measures are fully relaxed, we believe that the labor market can finally heal and gradually restore employment to pre-Covid levels. In the meantime, we believe the onus is on policymakers to keep monetary and fiscal policy sufficiently accommodative to support an economy and labor market still reeling.


This is not intended to serve as a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. This presentation may contain forward-looking statements. “Forward-looking statements,” can be identified by the use of forward-looking terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof, or variations thereon, or other comparable terminology. Investors are cautioned not to place undue reliance on such statements, as actual results could differ materially due to various risks and uncertainties.

This publication is prepared for general information only. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investment involves risk. Market conditions and trends will fluctuate. The value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested.

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