March jobs report should sharpen focus around another stimulus package: economist

James McCann, Senior Global Economist at Aberdeen Standard Investments, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Emily McCormick to discuss the impact the latest jobs report could have on the economy.

Video Transcript

You know, when you intentionally shut down the global economy, maybe we shouldn't be surprised that we shed 700,000 jobs in the month of March and that the unemployment rate rose to 4.4%. Let's check in with James McCann now, senior global economist at Aberdeen Standard Investments. James, thanks so much for making time for us this morning.

Should we be surprised? I mean, the thing is, I guess we all need to brace ourselves for eye-popping headline numbers in the weeks and months to come. But really, this shouldn't come as a surprise, should it?

JAMES MCCANN: No, it shouldn't at all. I mean, I think while there was a slightly worse outcome than expected, I think really what we're doing now is looking forward and saying, already this labor market report feels quite out of date given where the reference weak sat in the month and given what we've seen from the initial claims side since. I think it's very, very clear that actually, if this was done today, the unemployment rate would be a magnitude of order higher.

So while in normal times this would be a terrible report and we'd be looking at this with a great degree of shock, the sad thing at the moment is we're looking at it and saying, OK, but actually I think underneath the surface, things are a good deal worse.

BRIAN SOZZI: James, you see this report. April, the employee report's probably going to looks much more worse than this. Do you think it's necessary to save the US economy and prevent a recession that goes into 2021, the early parts of 2021? We need that fourth stimulus package from the government.

JAMES MCCANN: I definitely think this is going to sharpen and focus around that. There are a number of measures in the Cares Act, which should help given the rise in unemployment. So certainly the unemployment insurance increase and the broadening in the scope of that program to employ workers in the gig economy. That should mean that those who are all losing their jobs, who are finding themselves out of work should have at least some temporary support.

There are checks which are going to be coming in the mail. We think there'll be some delays in that too. But that should provide a degree of support.

But really, I think this underlines the scale of the challenge going on. And while the Cares Act is a huge piece of legislation, and in normal times an extraordinary degree of fiscal support, I think what this labor market data really tells us is, you probably need to do more. You need a bigger boat in this instance.

EMILY MCCORMICK: James, I'm wondering, given the current situation now, when do you see us hitting peak job losses? Is it going to be the April report, is it going to be reflected in the May report? And once we hit that peak, how many months do you think it's going to take to actually start to see rebalances, furloughed workers going back to work? And those who have been actually removed from their jobs able to find new work?

JAMES MCCANN: I think this all relates to how the coronavirus infection rate evolves from here. So if we continue to see new infections increase, then my fear is that this could continue, the labor market could continue to deteriorate over a long period of time. First of all, the weakness would be concentrated in those sectors most affected by social distancing. But the concern would be that you get a bleed as that economic weakness starts to spread and infect other parts of the economy.

Our expectation though, is that you are, through social distancing, able to achieve at least flattening in the curve. And not those enable some of these social distancing, if we look forward towards the summer, to start to be removed or at least relaxed to some extent. So really that would indicate that you get a peak in, I guess, labor market distress around the summer and then a slowish recovery from there. Maybe it's possible to get an initial rebound relatively quickly based on those people going back to work.

But I do think, even if you factor in a decent rebound based on a resumption of at least close to normal activity, you're going to take longer to get over what's a really big shock to the labor market. So it's probably the case that this has ramifications, even into 2021, just from what we've seen over the last few weeks.

ALEXIS CHRISTOFOROUS: And I want to bring everybody's attention some breaking news regarding Under Armor. They're going to lay off employees in their US stores and 600 employees at distribution centers. James, we know Under Armor was under pressure outside of this pandemic before all these shut downs started.

What about those employees who don't have any place to go when the economy gets back up and running? Who lost their jobs and it's more of a permanent situation for them, possibly because the retail store they worked at or the restaurant they worked at simply disappeared? What happens to that part of the population and how is that going to continue to be a drag on the economy?

JAMES MCCANN: Now, that's the really big worry. We have this sense of the economic clock stopping and that's what we're seeing now. And it's trying to keep that financial clock to some extent, we're trying to line up financial clock with the economic clock. So potentially slowing down that financial clock, preventing some of these business distress issues and really keeping that bounce-back ability of the economy in some sort of shape.

Now, I think the Cares Act, again, it had some measures aimed at that. So some of the business loans are actually grants in disguise. They can be used by firms for payroll costs. It could be used for firms for interest coverage. So there's a degree of support for firms to try and incentivize them to hold onto their labor, to try and provide them as well with a bridge financially through this process.

But I think that's one example and I think there will be many where either that action isn't coming quickly enough, it's not targeted is enough. And it's just not large enough in terms of the scale and scope of these programs. So unfortunately, we do see some permanent damage from this crisis.

And we do see some struggling to make it through, especially those who are going into it with already perhaps difficult business models or balance sheet situations. So that does hint at this, already suggesting there's some long term damage to the economy through this process.

BRIAN SOZZI: James, playing off of Emily's question, do you think if the jobs market loses over a couple of million in the April employment part, do those jobs come back as quickly as they were lost?

JAMES MCCANN: Some of them can, but I don't think all of them do. So I think the initial rebound, all of this depends on the social distancing question too and the way that the infection rates will fall off. But if we were to imagine an economy in three to six months, which was able to reduce these social distancing measures, restaurants were able to open, public transports and other forms of transport were returning towards normal, I think then that's an environment in which the matching is not to damaged. So you can probably get at least some resumption of those usual activities.

But it's absolutely the case that there'll be a group of people who have either become discouraged through that period and perhaps left the labor market. And that will show up in sort of lower participation for a period of time. And then there'll just be a group of people for whom those options are there to go back. They can't just accommodate all those new people back into the labor market so quickly. And I think the fear is that that becomes a longer-term unemployment issue.

A good example is after the financial crisis, it took years, and years, and years to create the sort of jobs that we've seen lost from the initial claims report over just a couple of weeks. So it gives you a sense of how slow labor market recovery can be.

ALEXIS CHRISTOFOROUS: All right, James McCann, senior global economist at Aberdeen Standard. Thanks so much for your time and for helping us make sense of this report.

JAMES MCCANN: Thanks.