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Stocks jump despite a record 20.5M jobs lost in April

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Managing Director & Chief U.S. Economist at NatWest Markets Michelle Girard joins Yahoo Finance’s Seana Smith to break down the April jobs report.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance's live market coverage. I'm Seana Smith. The jobs report is the big story today, 20 and a 1/2 million jobs lost in the month of April alone, now the largest job loss in history, and that's sending the unemployment rate to 14.7% for the month. Now, this is the latest glimpse at the pandemic's devastating economic toll.

But despite that record job loss, it's interesting when you take a look at the market's reaction today. We are still seeing gains across the board. The Dow now up just about 300 points. It was up 390 points at the highs today. And then we're also seeing the S&P and the NASDAQ both up just over 1% with just around two hours left in the trading day.

Sectorwise, all 11 of the S&P sectors are in the green this afternoon. Energy is by far the leader today, and with that we have oil up just around 2.3%.

But first, we have to get to the latest on the jobs report and dig into that number, and for that, we have Michelle Girard, Managing Director and Chief US Economist at NatWest Markets. And, Michelle, thanks so much for taking the time to join the show this afternoon. Let's get to that jobs numbers. What did you think of today's report, and was it in line with your expectations?

MICHELLE GIRARD: Well obviously, as you said, it was a horrendous report, you know, to have job losses in the tens of millions like this. There was-- there was one silver lining that we talked about, which is that with that sharp rise in the unemployment rate-- we had over 20 million people say they are now unemployed. A vast majority-- 78% of those unemployed in the month of April are viewed as-- or classified as on temporary layoff. That means that they do expect to be called back to work in the next six months.

Now, whether those 18 million people will actually all be recalled, you know, will depend on how the-- obviously the recovery unfolds. But if there's one silver lining, it may be that this spike in the unemployment rate and these horrific job losses may-- you know, a good number of them or a good portion of them may be reversed in the coming months if the reopenings go as expected.

SEANA SMITH: Yeah, Michelle, I wanted to ask you about that because how are you incorporating that into your forecast? because-- since there is so much uncertainty out there right now. We still don't know how many of those furloughed workers will actually turn into actual jobs lost.

MICHELLE GIRARD: We're-- you know, we're-- like everybody, we're trying to feel our way along. We're looking, you know, quite honestly, at how the recoveries are unfolding, whether it's China or Germany, these other economies that have opened first, and the US is behind-- you know, trailing behind by anywhere from a month to two months and trying to-- you know, to mirror the kind of recovery that we've seen.

I mean, the one thing I will say about all of the data over the last couple of weeks is that the tail risks of even worse news do seem to be reduced. I mean, what I mean by that is a month ago or two months ago the second-quarter GDP where the bulk of the impact is expected to be seen-- I mean, is it going-- is it going to be down 30%? Could it be down 50% or 80%? Could we have job losses as high as 30 million and unemployment rate at 30%?

I mean, what we've started to see is the news is bad, no question, but more or less it's coming in in line with our expectations and not a lot worse than feared. And as I said, that-- I've got a contraction of second-quarter GDP of down 35%. And again, as awful as that is, I'm feeling more confident about that as opposed to something much worse.

SEANA SMITH: Michelle, I want to get your thoughts on one thing, the overall unemployment rate, that it could have been almost five percentage points higher than it was actually reported because of the way that workers were classified in this report. So a large number were classified as absent from work instead of unemployed. So what does this tell us just in terms of future looking and what we can expect to see a month from now when we get the May jobs report or potential revisions, I guess? Does this tell us that we should expect potentially a larger number than the one that we got today?

MICHELLE GIRARD: You know, we had the same problem actually in March. So in March, the unemployment rate was reported to be 4.4%, up from 3.8%. And the BLS said if they didn't have this sort of classification or misclassification of some workers, the unemployment rate would have been 5.4%, they estimate.

So I think it's the same situation now, of course magnified because in April everything-- with the full impact more fully reflected, everything is larger. But I guess what I'm saying is I don't think we'll see a revision, and I'm not sure that it means that we're going to-- we should expect more or less in May.

Ultimately, it's the same sort of issue. You've got-- you've got millions and millions of workers who are being affected and are not working in April. Whether they are saying employed and not working or actually acknowledging they're on temporary layoff, they're not working.

And the question is as economies reopen, as businesses start to gear back up, will these workers be, you know rehired? Doesn't matter what they said they were-- their status was in April. Will they be rehired? And that, as I said, is going to depend on how quickly we can reopen and businesses can get back up and running.

SEANA SMITH: Michelle, you said that you expect a second-quarter contraction of 35%. And going off of what you were just saying just about states reopening their economies but we don't know how quickly a lot of these workers will be brought back into the workforce, so how quickly do you expect the economy to bounce back in the second half of the year, and when do you expect that GDP level-- or us to see the same level of GDP as we did before the pandemic?

MICHELLE GIRARD: Yeah, Seana, I mean, that's the whole question. I mean, when you think about why is it the markets can be doing what they're doing in the face of these kinds of numbers? it's because they sort of-- they understand the second quarter is going to look bad. What happens in the second half of the year? And you can see there's this optimism about the recovery, about the

potential for treatments, all of which will help the economy be able to recover.

After that 35% contraction, we've got GDP expected to be up 20% in the third quarter and another 8% in the fourth. So it sounds like you're bouncing.

Now that said, when you look at the levels, you are still only recouping about a little more than half of what you lost in output in the first half of the year. And, in fact, we don't have growth-- even with those kinds of numbers and expectations for 3 and 1/2% growth in 2021, we don't think you get GDP back to its precrisis levels until the middle of 2022.

So it is going to be-- we are doing some lasting-- longer-lasting damage, and it is going to be a while I think, you know, for us to really fully get beyond the damage that COVID has wrought.

SEANA SMITH: And, Michelle, to get back to those precrisis levels, do you think we're going to need government intervention to continue, and do you think-- or will a gradual-- or do you think a gradual reopening will require continued support?

MICHELLE GIRARD: Well, I think we've had a massive amount of support from the government as well as from-- you know, from the Fed. A lot of the actions that they've taken is what's helped stabilize the markets, and that's super important as well.

I have to be honest with you. I think a lot almost depends even more on what progress we can see on the medical front, if you will. It's so important to be able to get not even a vaccine but even just treatment-- so people felt like they could take a chance and go out and resume activities because their fear, if they fall ill, is reduced because we've got more confidence in the treatments. That would mitigate, you know, a very negative outcome.

So I honestly think that, ultimately, what's needed over the second half of the year is maybe not more in terms of government support but progress so much on the medical front. And you see how the markets react on positive news, again, on treatments or vaccines, and I think everyone understands that's really the key here to how fast we can get back to whatever new normal is.

SEANA SMITH: All right, Michelle Girard, managing director and chief US economist at NatWest Markets, thanks so much for joining us today.