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Some economists estimate more than 20 million jobs could be lost in coming weeks and jobless claims will extend last week’s record 3.3 million, but Friday’s jobs report isn’t likely to reflect the depth of the labor-market crash because households and businesses were surveyed before coronavirus shutdowns cascaded across the country and layoffs started to mount.

Payroll provider ADP provided an early glimpse of how current data may not reflect reality on the ground as its survey period, like the Labor Department’s, ends on the 12th of the month. ADP said Wednesday that small businesses eliminated 90,000 jobs in March, a decline that was was offset by hiring last month across larger companies, resulting in an overall drop in private payrolls of 27,000.

Over 20 million jobs will be lost in the coming weeks, estimates Lydia Boussour, an economist at Oxford Economics, with low-paid workers and small businesses hit hardest. It won’t be until the April and May jobs reports when economists and investors will see the extent of the collapse, which she expects to persist into 2021.

That said, the March report is nonetheless going to be bad and it will represent the first time in a decade that employers eliminated more workers than they hired.

Just how bad will March nonfarm payrolls be?

“We already know that the fall in employment is apocalyptic,” but the data needs to catch up to that reality, said Diane Swonk, chief economist at Grant Thornton. The March payroll survey was conducted during the week of March 12, before many stay-home orders were issued and before a record 3.3 million Americans filed for unemployment insurance for the week ended March 21.

David Kelly, chief global strategist for J.P. Morgan Asset Management, explains how investors can maneuver the ongoing spread of coronavirus alongside troubling employment data with the anticipation of an eventual recovery and the re-opening of U.S. businesses through 2022.

Still, jobless claims started to spike in the second week of March. That initial burst was reflected in the March 19 jobless claims report covering the week prior, which showed claims surged 282,000. At least part of that early burst of layoffs will be picked up by the March nonfarm payrolls report, and that is not to mention the impact of hiring freezes at companies across the country.

Swonk sees a drop of 125,000 in Friday’s report, driven by declines in leisure and hospitality as major conferences began to be canceled in late February. There will be some gains at grocery stores and health care, and possibly construction as laborers were also deemed essential, but likely not enough to offset the weakness across retail more broadly.

Boussour, meanwhile, notes that some 229 million people in at least 26 states are currently under some form of a lockdown, and states such as Ohio and South Carolina have reported 30-fold increase in the number of claims last week as California reported 25 times as many claims. “The prospect of more stringent lockdown measures and the fact that many states have not yet been able to process the full amount of applications suggest that the worst is still to come,” Boussour said.

Earnings of those still on payrolls should dip

Workers’ average hourly earnings rose 3% in February from a year earlier. For March, Swonk expects a drop to a 2.7% pace, which would be the lowest level of pay in over two years. The reason it may not be worse: The loss in low-wage jobs across hospitality and retail will be partially offset by higher-paying jobs that weren’t as quickly shed.

At the same time, many employees’ hours have been cut, amounting to lower pay as some businesses scale back without completely eliminating staff. Many restaurants, for example, have kept only enough staff to prepare to-go meals as cities across the country order restaurants and bars to otherwise close.

Skyrocketing unemployment won’t yet show up

Because the unemployment rate lags the reality, Swonk sees a rise to just 3.8% in March from 3.5% in February. But that figure will surge well into the double digits in April. To illustrate, economists estimated that the 3.3 million rise in jobless claims amounted to roughly a 2% increase in the unemployment rate for last week alone.

Looking ahead to the April report, Boussour says the unemployment rate will spike toward 12% as nonfarm payrolls contract by 20 million.

Participation will probably dip

“Who will be able to say they are actively looking for work when entire states are on lockdown?” Swonk says, meaning the labor-force participation rate will tail off. That rate had picked up as the 11-year economic expansion pulled more people in, including some who had been on the sidelines the longest.

Swonk says that as the drop in employment accelerates, investors should pay more attention to details within the household survey (as opposed to the establishment survey), which includes the participation rate. The details of the household survey should carry more weight than the headline payroll figures, Swonk says, given the lack of information coming out of businesses shuttered by the coronavirus.

Watch for more part-timers

Given how uncertain everything felt in early March, it’s plausible that employers cut hours and involuntary part-time work jumped, said Martha Gimbel, an economist at Schmidt Futures who formerly worked at the Labor Department.

To that point, Gimbel says investors should look at average weekly hours in the leisure and hospitality industries, which were at 25.8 in February, down from 26 a year earlier. More broadly, average weekly hours for total private workers have held around 34.4 for the past year.

Write to Lisa Beilfuss at lisa.beilfuss@barrons.com