Jobless Forecast: Deep Stasis

Update 449: Jobless Forecast: Deep Stasis,
Out of the Free Fall, into a Long-Haul Stall

The collective sigh of relief from workers and business owners seeing the 13.3 percent national unemployment figure for May may have come too soon. The figure is, at best, misleading. A 1.4 percent drop in unemployment, the best month-over-month figures since the pandemic began, suggests that we are on the expressway straight to full recovery. More likely, we are looking at lots of stop and start traffic. 

Why did the May numbers surprise so much? What will the unemployment situation look like in the coming months? Below, we examine the BLS figure, the current circumstances facing workers, and trajectory for national joblessness. 

Good weekends, all….

Dana

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BLS Blunder

Observers were shocked when the BLS May jobs report showed much lower unemployment than anticipated. Yet, the numbers are not as they seem. Since March, the BLS has encountered problems estimating the unemployment rate. The agency calculates unemployment through a monthly survey of American households which asks respondents about their employment status. An unusually high number of respondents reported that they were “absent” from work rather than temporarily unemployed, resulting in a lower-than-accurate unemployment rate. 

Accounting for the misclassification error, the unemployment rate was 5.4 percent in March (versus the reported 4.4 percent) and a staggering 19.7 percent in April (versus the reported 14.7 percent). While the revised unemployment numbers still show unemployment has decreased since April, the rate remains high and conditions for workers bleak. An estimated 16.3 percent of workers remain unemployed even with the adjustment. 

Adjusted vs Unadjusted Unemployment Rate

Source: NYT

BLS intends to correct the error in the June jobs report, but this could spell additional confusion. The June figure will be difficult to compare to previous figures, confounding unemployment trend analysis. The agency’s adjustments for the previous months are only estimates. It will be difficult to parse whether differences between the May and June figures are due to actual changes in unemployment or to fixes by BLS surveyors. 

UI Benefits: Congress Confronts Cliff 

Republicans celebrated the news of declining unemployment by decrying the need for any additional coronavirus packages. But even without the adjustment, unemployment is still higher than at any point since the Great Depression and several points higher than the worst of the Great Recession. Jobs regained in May account for only 10 percent of the jobs lost from March to April. An additional 2.2 million workers filed for either unemployment insurance (UI) or Pandemic Unemployment Assistance (PUA) last month. The unemployment numbers also don’t account for the millions of Americans who have stopped looking for work due to fears of catching the virus or childcare responsibilities. 

Expanded UI benefits, a liferaft for millions of laid-off and furloughed workers, are set to expire at the end of July. Right now, over 30 million workers are receiving UI or PUA benefits. Congressional Republicans have consistently objected to continuing expanded UI, arguing erroneously that it incentivizes workers to quit and disincentivizes them from returning to work once recalled. But, per a Washington Post-ABC News poll, 58 percent of Americans believe that expanded UI should be extended past July. Federal Reserve Chair Powell also voiced his concern this week that Congress might withdraw expanded UI benefits before the crisis passes. 

Recovery Q: a V, U, or L? A: an L for Trump

After May’s jobs report, the White House promptly declared victory. Advisor Larry Kudlow announced that the U.S. economy had hit its “turning point” in the road towards recovery. Despite the sunny rhetoric, there is nothing to indicate that the country has turned any corners. COVID is nowhere near being contained, and a closer look at jobs numbers suggests that an increasing number of workers won’t have jobs to return to. If recent trends continue, new hotspots should prompt new stay-at-home orders, while more jobs permanently disappear.

  • Emerging Hotspots

In recent weeks, many states have begun reopening their economies. At the same time, per Johns Hopkins University, twenty-three states are still observing upward trends in the number of new cases. Ten of these states reported their highest seven-day average of new COVID cases this week. Cases in southern and western states (which have been some of the most aggressive about reopening) are increasing rapidly.

At this rate, another round of shutdowns and stay-at-home orders could occur. They’re already under consideration in both New York City and Houston. These shutdowns will force retail businesses and restaurants to temporarily close their doors again and lay off workers who just came back.

  • Permanent/Core Unemployment 

The decline in unemployment in May’s jobs report was driven almost entirely by a decrease in temporary layoffs. As states began to relax stay-at-home regulations, businesses — particularly in the service and hospitality industries — started rehiring employees they laid off. This drove down the number of temporarily unemployed workers and lowered the overall unemployment rate. 

While topline unemployment fell in May, the core unemployment rate increased. The core unemployment rate is the total of those unemployed, discouraged, or marginally attached to the workforce minus those temporarily laid off. In May, core unemployment was 5 percent, up from 4.6 percent in April and 3.7 percent in December. This indicates that an increasing number of Americans are falling into sustained unemployment. Simply put, these jobs are not coming back, COVID, or no COVID.

No Relief in Sight

The country is still going through two, interlocking crises — a once-in-a-century pandemic that has claimed the lives of over 107,000 Americans and a jobs crisis that has seen unemployment rise to levels not experienced since the early 1930s.

Senate Majority Leader McConnell has been reluctant to pass additional relief; he has no legislative plans to address the benefits set to expire at the end of July. President Trump has long since checked out on all of the above, save possible tax cuts, so it will fall to Congress to do what it can to curb the worst of the economic damage. The House has done its part. The HEROES Act was sent to the Senate weeks ago. For now, the much dreaded “second wave” seems a ways off — because we still haven’t gotten through the first.

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