'This is way worse than anything we saw in the Great Depression': Economist

The Department of Labor released its monthly jobs report on Friday, showing a loss of 701,000 jobs. KPMG Chief Economist Constance Hunter shares her take on the report with the On The Move panel.

Video Transcript

JULIE HYMAN: I do want to begin with that jobs report. For that, we're joined by Constance Hunter. She is the Chief Economist at KPMG. Joining us from New York, Constance, it's great to see you.

You can just unmute yourself so we can chat about these numbers here today. 701,000, and, as I said, it doesn't fully capture because the survey period included march 12, so that was the pay period. So Constance, what do you think the actual number looks like? And what are we going to see for the month of April, for that matter?

CONSTANCE HUNTER: Yeah, I mean, it's just so heartbreaking, this data. We're expecting at least 8 million job losses for April, possibly closer to 12 million. For the entire second quarter, we're looking at 25 million job losses. And what is so especially sad about this is that, F once workers become separated from their employers, it makes it much harder to restart the economy. So it's just all around a very sad and unfortunate situation.

ADAM SHAPIRO: Hey, Constance. It's Adam. Good to see you. I want to broaden--

CONSTANCE HUNTER: Hey, Adam

ADAM SHAPIRO: --with these-- really, none of us, in our lifetime, it's been since the Great Depression we've seen these numbers--

CONSTANCE HUNTER: No, no, it's even worse because, during the Great Depression, we didn't have a sudden drop off the cliff like this. This is so unprecedented, I mean-- we have more social safety nets in place than during the Great Depression, but this is way worse than anything we saw in the Great Depression.

ADAM SHAPIRO: OK, and that's what I wanted to ask you about. It was May 6, 1935 that then President Roosevelt created, what, the Works Progress Administration. Are we going to need that kind of government works program to get out of this mess?

CONSTANCE HUNTER: That's a great question. I mean, we have many more social safety nets now than we did at that time, right. So we have unemployment insurance. We have food stamps. We have social security. We have Medicaid, Medicare, so a lot more in terms of social safety nets than at that time.

And remember, at that time, it was an economic phenomenon that were driving the slowdown in GDP. This is a little bit different. We're seeing, obviously, a health-care-induced coma on the economy, and that is interacting with the global financial market. So of course, we're seeing strain there. The Fed, as lender of last resort, is coming in to try to ease constraints within capital markets.

But of course, there are a lot of firms that are very highly indebted, some of them in sectors that are especially affected. So consumer discretionary firms make up 17% of the high yield index. We see energy, which, of course, we see, as you mentioned, Julie, earlier, the fall in oil prices. Even with this increase, we're looking at below $30 a barrel, so very, very devastated industries, [? in ?] the knock-on effect. But it's a little different than the Great Recession because it's a sudden stoppage that's due to a shock rather than an erosion of economic conditions due to factors within the economy alone.

RICK NEWMAN: Constance, it's Rick Newman here. One of the crazy ironies of these job losses is this is actually what we need to get people to stay home and stop the spread of the virus, which is the precondition for restarting the economy. So if you look at those University of Washington projections for when the infections might peak and then start to decline rapidly, it shows that, in some states, that could happen around, let's say, May or the beginning of June. So if we get back to some kind of restart situation, let's say, by June, is there any hope that a lot of those people will get hired back?

CONSTANCE HUNTER: Sure, I think there is an important distinction to me to be made between the way we're handling this and the way some European economies have handled this. So in Europe, we have several economies that have basically said to firms, we will pay you to keep your workers home. So they will stay employed, and they will stay so-called attached to their employer so that, when they restart, the firms can simply call people back to work.

The government stops paying their salary. The economy itself does the job that it's supposed to do in compensating people. And the flow of capital moves to the economy. And that is going to make a much easier restart in hitting that restart button than what we're going to need to do.

So firms that have had to fire workers are probably going to go back to many of their same workers to rehire them. But of course, there will be some friction and some sorting as people, maybe, don't go back to the same employers or, maybe, have been able to get temporary work during the crisis to hold themselves over and choose to switch jobs. So it will just be a little bit more friction. So we do expect a restart, but we don't expect that restart to be as seamless as it could have been had people been able to remain employed at their existing employer.

JULIE HYMAN: And Constance, speaking all of that, the so-called paycheck protection program starts today. And speaking of friction, we've had a lot of banks that have said, we're ready. We're already flooded with applications.

But we've had some banks say, we're not ready yet. So we're already seeing examples of what you're talking about. So how does this affect that whole debate that has been happening among economists about what kind of recovery this is going to be? Pick whatever shape you like.

CONSTANCE HUNTER: So sure, I mean, and that's to be expected. It's a brand new program. It was [INAUDIBLE] for a good reason, pushed out very quickly. But it's understandable that it isn't, maybe, working 100% seamlessly.

I think the problem is the gap between when firms had to start laying people off and when that money is available. And so many of our clients, for example, are larger firms, and they are doing everything that can, not only to retain their employees, but also to try to extend credit to some of their customers that may need it, even when they're not normally in the business of doing that. So I think you're seeing larger firms, really, that have the ability, trying to smooth themselves over the situation.

But other firms that are smaller, there was just a gap between when the government assistance started and when the crisis started. And I would say the other complicating factor is what I was alluding to earlier with regard to the debt capital markets. So firms that have seen a sudden stoppage aren't necessarily able to have the cash flow necessary to pay off debts and to service those debts, and so the fallout from levered firms really getting in trouble, I think, is where we see the biggest difficulty in restarting the economy once we're past the health problem.

JULIE HYMAN: Constance Hunter, thank you so much. She's the Chief Economist at KPMG. Stay well, Constance. It's good to see you--

CONSTANCE HUNTER: Thank you. You, too.

JULIE HYMAN: --remotely.