The U.S. economy shed a record 20.5 million payrolls in April and the unemployment rate jumped to 14.7%, as the coronavirus pandemic forced businesses across the country to temporarily shut down and lay off or furlough workers. Payden & Rygel Chief Economist Jeffrey Cleveland joins Yahoo Finance’s Zack Guzman to discuss.

Video Transcript

ZACK GUZMAN: Right now we have the NASDAQ leading to wrap up the week, up by about 1 and 1/2% right now, which may be a surprising move to the upside, given the terrible jobs report that we got this morning, the worst ever when you look at the total amount of jobs lost. 20.5 million payrolls in April lost as the unemployment rate soared to 14.7%. That's the highest unemployment rate we've seen since 1939.

And yet, as bad as that number was, it's still better than what economists were bracing for, which they were expecting to be 16%, the unemployment rate, so a little bit better there.

But importantly, the Department of Labor did warn that due to difficulties labeling temporary layoffs, that number could really have been 5% higher, so potentially an unemployment rate as close-- as high as 20% for the month of April. As the White House was quick to point out, a higher number of temporary layoffs could also mean a quick snap back if those workers are quickly rehired in the recovery.

So for more on just how big of an if that is and what the record job destruction means for the overall economy we're joined by Payden & Rygel Chief Economist Jeffrey Cleveland. And, Jeffrey, thanks for joining us.

It's a couple different angles you could take when you look at this report. So what did you make of the headline number?

JEFFREY CLEVELAND: Yeah, I mean, you have to look at it in the historical perspective. And as you said, you need to go back to the 1930s to find a higher unemployment rate, you know, even at the 14.7% figure.

I think that 14.7% figure is a little on the low end. When we look at all the people that have been, you know, unemployed and then perhaps some of the misclassifications, you can get to a 20% unemployment rate here based on the size of the labor force as of February. So I think we're masking sort of the underemployment, if you will.

One other way to slice it, if you want, is look at 25- to 54-year-olds. Those folks should be working. They shouldn't be retired, right? So that gives us the core working-age population. That ratio or that percentage dropped below 70%. That's back to, like, 1976 levels. So a huge decline on the month, over 10 percentage points there. So I would say that's the real big drop.

If you want to spin it, I guess, on a good note, yeah, you-- what the White House has done. You can look at the share of the unemployed that are referencing the temporary nature of their layoff. However, I mean, it's a survey. So if I ask you, hey, are you unemployed? Is it permanent or is it temporary? You're going to be-- you know, it's temporary. I'm going to be invited back to work as soon as this shutdown is over, right?

But how do you know that? You don't know that. That's going to depend on how the reopenings happen and how quickly, as the mayor said on the earlier segment, how quickly people go back to behaving as they were before. That will determine whether businesses, restaurants need the staffing that they had before. So that's an open question for me at this point.

ZACK GUZMAN: You know, I mean, you never know if we're going to snap back to levels that we saw before all of this played out, and that's kind of the key question here. And I guess on that front, it now becomes what Washington chooses to do for the next round of stimulus. We've heard a couple things being floated. On the Democratic side, you could look at maybe potentially even more stimulus checks coming to those in need. And then you look at what President Trump's been floating and the idea of rolling back payroll taxes.

But I'd be curious to get your take on what that might look like now if we are seeing the unemployment rate tick up, potentially dampening the effect of rolling back payroll taxes if fewer Americans-- if you look at the numbers, almost potentially 1 in 5 Americans now not even on the payroll.

JEFFREY CLEVELAND: Yeah. I think-- so I think it hinges on this question of how permanent or how temporary these layoffs are. And, you know, the optimistic case is that 70%, 80% are just temporary. As the shutdowns end, people will be taken back, and then you won't-- you won't need to worry about that. It sort of solves itself.

I think a more pessimistic take would be something closer to maybe 60% are temporary and 40% are permanent losses here because we do have-- we do have a reallocation or a restructuring of the economy, if you will. In my opinion, things are not going to go back quite to where they were before. And the sooner we sort of let that process start to play out probably the better for the economy.

Many of the things that have been put in place now are trying to freeze everything as it was, you know, on, say, March 11 before the NBA shut down and, you know, we really saw activity slowdown across the country-- really across the world in a synchronized fashion. The relief measures were trying to freeze that in place.

But if the world is going to be a different place after-- you know, after all this is said and done, there's only so much that can be done to forestall that, I think.

ZACK GUZMAN: Yeah. And when you think about who might actually need the relief as well, that's been something we've been looking into since this crisis really hit. We got an interesting update in this report, a little bit of a kernel there when you look at the racial breakdown and who has the highest unemployment rate there by race. Clearly Hispanics the hardest hit. The employment rate for Hispanics surging to nearly 19%. That's much higher than whites at just over 14%, even higher than the black unemployment rate at 16.7%.

And when we talk about the recovery since the last recession back in '08, the Great Recession, so much of that recovery had done a lot to kind of close the racial-inequality gap, and now kind of seeing that undone in just a matter of months. So what's the impact there when you look at it?

JEFFREY CLEVELAND: Yeah, we're seeing that. I mean, unfortunately I think this is a situation where the bailouts or the relief measures that have taken place have helped the biggest companies. I worry about the smaller companies that are going to suffer. They don't have access to the investment-grade or the high-yield bond market to raise capital quickly. We had, I think, $86 billion in capital raised in the investment-grade market this week alone.

So the big companies are able to tap those markets, get the capital they need, and buy time. Smaller firms won't have that same luxury. And I think that's a kind of a big-- the big win, the rich get richer sort of theme playing out again here. I worry very much about that.

With regard-- you know, the one thing I was going to say on the breakdown, the demographic breakdown and the skill breakdown, et cetera, I think people-- the bias was that this was all low-skilled layoffs and low-paid workers were being laid off and the, you know, higher-paid workers, the white-collar workers would be spared here, and that was the reason that we shouldn't worry too much. That's one of the narratives that I've heard.

What we saw in the jobs report today was across industries. I think only 4% of industries were reporting expansion on a month-to-month basis. So it hit-- it did hit the white-collar workers as well, so they weren't left unscathed.

So you have business services down 2.1 million. You had health-care services down 2.1 million in terms of jobs in the month of April. So it's hitting a wide array.

So, I mean, I don't how you want to spin that. To me, that just makes me a little bit more reluctant to adopt the V-shaped recovery story that, you know, if was all gig workers laid off, we can quickly hire them back on. That's not really what's playing out here. It's affecting a wider swath of the economy.

ZACK GUZMAN: Yeah, and I think that that's really what the headline number is telling us. I mean, when we think about it, that's a wide margin of error there when you think about a 5% swing in what the actual unemployment rate could be, 14.7% versus what they say. It could be 20%. So we'll have to wait and see how that gets adjusted moving forward and what the unemployment claims on a week-over-week basis continue to fluctuate there. But Jeffrey Cleveland, appreciate you taking the time to chat with us. Payden & Rygel chief economist.

JEFFREY CLEVELAND: Have a good weekend.