Before Covid-19 came along, one certainty that economists and investors alike could bank on, was the defensive quality of the service sector and the notorious cyclicality of the manufacturing sector. Now, however, as a result of the lockdown measures, the service sector finds itself in the eye of the storm. As the recession is still ongoing and as economic data is normally released with a time lag, one can only make rough estimates about the full extent of the economic damage. No wonder that the dispersion of forecasts is so huge.
April's U.S. employment report nevertheless offers a glimpse of what’s going on in the U.S. economy. And what would probably be going on in other economies, if it wasn't for their generous state-support schemes, most notably the European “short-time-work” programs (also called "Kurzarbeit.")
While a loss of 20 million jobs within one month already hints at the dimension of this recession, the details of April’s employment report reveal the whole tragedy resulting from the biggest economic shock since World War II.
Employment in goods-producing industries has been hit hard: the number of jobs declined by 11% on average compared to February. But for the service sector the picture is even grimmer: the number of jobs has declined by more than 16% over the same two months. Sectors such as leisure and hospitality have been hit the most by the various lockdown measures, as our "Chart of the Week" demonstrates. Digging deeper into the data, one finds that employment in clothing & accessories stores is even down by 59%, which again is topped by a drop of almost 70% in scenic & sightseeing transportation.
And then there is another number with a grim message: Average hourly earnings spiked by 4.7% in April. Sounds good, but is bad, as this increase was not driven by pay increases for the fortunate ones who still have a job. As this is an average figure, it increases if it includes fewer of those earning below-average wages. Most of these low-earners work in the service sector. Put differently: the economic shock is hitting the poorest and most vulnerable parts of the society most.
How can their situation be improved? Whether the various forms of loans and direct transfer payments to households and business that were quickly implemented in the United States or various established European schemes focusing more on job protection will prove more effective, will be open to academic debate in a couple of years.
Sources: U.S. Bureau of Labor Statistics, DWS Investment GmbH as of 5/11/20