When factoring in the real numbers, unemployment in the United States is back to Great Depression levels.
The actual U.S. unemployment rate is almost 20 percent, not the official 14.7 percent reported, according to the U.S. Labor Department.
The official figure should include people “furloughed” – on temporary unpaid leave – but does not, the department pointed out.
If these non-workers were included, the unemployment figure would be 19.5 percent.
In April, 9.9 million people were not part of the workforce but told a labor department survey they wanted a job. The number was the highest on record.
Adding that group to the total would have pushed the unemployment rate to 19.8 percent, the department said.
Airlines Planning for a Long, Weak Recovery
After losing billions of dollars during the first three months of this year, U.S. airlines are looking ahead to hard years of rebuilding trade.
United Airlines executives said the first quarter’s results were worse than they had predicted. The company lost $1.7 billion during the period.
Scott Kirby, United’s incoming CEO, said that demand for airline seats could be “essentially zero” for the usually crowded summer vacation season and also for the rest of this year.
“We are not projecting that,” he added. “But we are planning for the possibility.”
American Airlines, which lost $2.2 billion during the year’s first quarter, reported that 80 percent of its flights are no more than 25 percent occupied.
Southwest Airlines lost $94 million during this year’s first three months but noted bookings picked up in April. The company isn’t ready, however, to claim the increase is a trend.
More than 171,000 passengers passed through TSA screening gates on 1 May, the largest number in a month but still 93 percent less than a year previous.
Airlines have issued billions in new bonds to cover operating expenses and received $25 billion in federal aid to keep its workers on the payroll through September. If more tickets aren’t being sold at that point, the airlines will have to cut staff to match its revenues.
The nine largest U.S. carriers probably will have to cut 105,000 workers among them, estimates Helane Becker, an analyst with Cowen & Co. The figure represents about a quarter of the industry’s workforce.
U.S. Airlines Warn of Massive Job Loss Coming This Fall
U.S. airlines have been granted $25 billion in federal bailout funds to be used mostly to keep their workers, numbering about 750,000, on the payroll.
The funds only cover about two-thirds of the carriers’ labor costs.
When those funds run out on 1 October, layoffs of as many as 250,000 are all but inevitable, airline executives say. United already has told its managers and administrative staff that their ranks will be cut by 30 percent on that date.
United has told those employees to take 20 unpaid days off between now and the end of September; JetBlue has told its salaried workers to take 24 unpaid holidays during the period.
The companies classify these missed days as “reduced hours,” which are allowed under the terms of their bailout, not involuntary job cuts, which are not.
Already, about 100,000 employees at American, Delta, Southwest, and United have retired voluntarily or taken indefinite unpaid leaves. Analysts think the figure could rise to 30 percent across the industry in the weeks ahead.
Covering the balance of payroll costs and other expenses, Southwest Airlines “burned through almost a billion dollars in April,” said CEO Gary Kelly. “You just can’t survive that way.”
United is flying only 10 percent of its pre-pandemic schedule “and we plan for it to stay at that level until we begin to see demand recover,” said president Scott Kirby. If demand remains feeble on 1 October, the airline will implement “difficult and painful actions,” including massive layoffs, reduced work hours, and “other actions that will have an immediate impact on our people and their livelihood.”
TREND FORECAST: Last week, Columbian airline Avianca, the second largest airline in Latin America, filed for bankruptcy protection in the United States.
Avianca has 189 planes that were making 700 flights a day before the economic lockdown took hold. Now, it says, 88 percent of the countries it was flying to have banned travel, cutting the airline’s revenue by 80 percent.
Avianca was in trouble before the pandemic struck.
Its credit had sunk to a negative rating, and there were sudden changes on the board of directors and in CEOs.
The carrier’s trouble casts a shadow over the broader industry. Avianca is a member with Lufthansa, Singapore Airlines, and 24 other carriers of the Star Alliance, which coordinates operations among them, such as sharing airport terminals. In 2019, a holding company involved with United Airlines bought a majority ownership share in Avianca.
This is just the beginning of major bankruptcies and obliteration of travel and hospitality-related businesses as a result of government lockdowns and restrictive “New ABnormal” regulations.
Absent a wild card event, we forecast a modest travel hospitality rebound within three years. The new laws, however, combined with consumers fearful of travel, plummeting unemployment, and eroding income levels, will drive those sectors in “Greatest Depression” declines.
Manufacturing Contracts at Fastest Rate in 12 Years
The Institute for Supply Management’s manufacturing index fell to 41.5 in April from 49.1 in March, the institute reported.
Readings above 50 indicate expansion of the manufacturing sector; below 50 signals contraction.
The reading was the lowest since April 2009 and the “fastest rate of change in economic activity in modern times,” the institute said.
A sub-index charting manufacturing production dove to 27.1, the lowest reading since the index began in January 1948. A sub-index tracking unemployment fell to its most dismal number since 1949.
The IHS Markit’s Purchasing Managers Index fell from 48.5 in March to 36.1 in April, the lowest mark since 2009.
According to analysts at Oxford Economics, manufacturing will not return to pre-pandemic levels until next year.
Overall, the U.S. economy’s output will shrink by 25 percent in this quarter, according to a consensus among economists surveyed by the Wall Street Journal.
TREND FORECAST: More than just furloughing workers, factories across the nation… and the world, are closing down for good, and more will follow. Caterpillar, Goodyear Tire & Rubber Co., Polaris Inc. (boat and motorcycle makers), Lenox (makers of china dishware)… are among the many companies closing plants, and/or going out of business.
Berkshire Hathaway Loses $54 Billion but Buffet Still Upbeat
Warren Buffet’s vaunted investment conglomerate lost $54.5 billion in the first quarter of this year, negating virtually all of the company’s $56.3-billion gain in 2019.
The company booked $21.7 billion in profits during the same quarter last year.
The company has significant holdings in American Express, Bank of America, and four major U.S. airlines, all of which saw their share values plunge. Berkshire also owns a major stake in Kraft Heinz, the market value of which has declined by about 40 percent since Berkshire bought it.
Berkshire warned it might need to take a write-down on the investment.
Buffet also warned that insurance companies will face a horde of lawsuits related to the pandemic and economic shutdown. Berkshire Hathaway owns the Geico insurance company.
Buffet sounded a positive tone, however, at the company’s virtual annual meeting this month.
Saying the pandemic’s worst-case outcomes were now unlikely, “we’ve faced tougher problems and the American miracle, the American magic, has always prevailed,” he said, adding it will prevail once more.
Shareholders asked why Berkshire hasn’t been snapping up troubled companies during the economic lockdown. Buffet replied that Berkshire has been shopping and wants to do “something big” but “we haven’t seen anything attractive.”
TRENDPOST: Mr. Buffet’s statement that the “American miracle, the American magic, has always prevailed,” is an outdated Donald Trump “Make America Great Again,” slogan that sounds good but defies reality.
As we have long reported in the Trends Journal, those nostalgic visions of a time-gone-by have long left America.
With median household income below 1999 levels, 42 percent of the public not having $400 to pay an unexpected bill, 70 percent living paycheck to paycheck, consumers $14 trillion debt and the wealth of the nation concentrated in Mr. Buffet’s one percent… the “miracle” is gone and the “magic” tick has failed.
