JOB GAINS IN MAY & JUNE DON’T COME CLOSE TO REPLACING JOBS LOST IN MARCH & APRIL
NEW YORK (July 2, 2020) -- The Bureau of Labor Statistics report issued today tracks an economy slowly pulling out of a deep pandemic-generated recession, but in grave danger of backsliding into an even worse situation.
The 4.8 million jobs recovered in June, added to 2.7 million jobs recovered in May, don’t even equal a third of the 22.2 million jobs lost in March and April.
And while the overall unemployment fell by 2.2 percentage points to 11.1%, it’s still higher than the peak of the Great Recession, when it was 10%. It was 3.5% in February. The Black unemployment rate remains 50% higher than the rate for whites: 15.4% for Blacks vs. 10.1% for whites.
At the same time, weekly unemployment claims continued above one million for the 15th week in a row.
The broad, deep, persistent scourge of racial inequality is clearly evident. The health crisis is placing a heavy burden on people of color. Their health, work, and savings are taking a heavier hit than other groups.
For example, consider the 2.2 million domestic and nursing home workers, among the lowest-paid workers in the labor force. About half of the workers are African-American women; most others are Latino and Asian, many born outside the U.S. Their average pay is $12 per hour, many with no overtime pay. Fewer than 10% have a retirement plan; and only 20% have health insurance.
The labor market is being driven by the gradual reopening of the economy. Business activity now, as always, is driven by consumer spending, which is currently supported by massive federal government fiscal policy, coupled with Federal Reserve lending programs. Much of the fiscal stimulus is scheduled to expire in a few weeks. An additional stimulus is required to drive GDP growth in the second half of the year. Without it, the economy will sink deeper into recession.
Since the virus struck the U.S. in February, GDP declined 4.8%, the unemployment rate surged to 14.7%, and more jobs were lost in March and April than were created in the entire nine-year recovery from the Great Recession.
The federal government responded quickly with a $2.9 trillion spending program – 14% of the GDP – to bolster household income and business production. The fiscal stimulus program included the $700 billion Paycheck Protection Program, $450 billion for the Treasury to backstop Federal Reserve lending, and several other time-limited measures to boost spending.
But the economy shrank into a recession, which in scope and possibly duration, threatens to top any previous collapse in U.S. economic history, including the Great Depression.
Declining state and local revenue has led to cuts in public employment in vital services like education and public safety. That, coupled with lagging business recovery in many industries, suggests an extended period of high unemployment. That means the economic recovery is likely to be slower and take many months to reach the pre-COVID-19 level observed in the fourth quarter of 2019.
To get the economy moving, households must spend much more. Consumer confidence is the key determinant of consumer spending. Spending started to increase when states and cities started reopening. But as the virus contraction curve bent upward in major sunbelt states: Florida, Arizona, Texas, and California, new infections are on target to 100,000 per day in September. That would throw a major monkey wrench into economic recovery as lockdowns are re-imposed.