Stagnating Economy Headed Into Double-Digit Recession Without Federal Aid

by Bernard E. Anderson, Ph.D.

Senior Economic Advisor, National Urban League, and  Whitney M Young, Jr. Professor Emeritus, The Wharton School, University of Pennsylvania

The January jobs report showed an economy treading water.    

Other than professional and business services, where temporary hiring was robust, private employment growth was stagnant. State and local government hiring spiked mainly because of school reopening.  The leisure/hospitality industry continued to lose jobs, reflecting restrictions imposed to contain the spread of the virus.  Revised data showed that the leisure and hospitality sector lost nearly 600,000 jobs in the last two months. Wholesale and retail trade lost 50,000. There was little change in employment in other major industries.

It’s clear the economy is stagnating in response to the surging pandemic.  President Biden’s $ 1.9 trillion COVID relief package, which is being fast-tracked through Congress, is desperately needed. Targeting aid to households and small businesses could prevent what appears to be a looming double-digit recession

With women are leaving the labor force in record numbers -- 361,000 thousand last month -- increased work at home, and almost no wage growth, the labor market shows structural change as the pandemic persists. 

In the midst of these conditions, Black workers are falling further behind.  At 9.2 percent, the Black unemployment rate is about 60 percent higher than the rate for whites, and about 50 percent higher than it was at this time last year. Meanwhile, their numbers among the permanently unemployed are rising; the longer they are out of the labor force, the more difficult reemployment will be during the economic recovery.   That makes it even more important to enact a large stimulus program and target the assistance to households and businesses in greatest need.

The strong housing market helped drive up construction hiring, but manufacturing and information services were basically flat.  Large firms are moving cautiously on the job front, while small and medium-size firms are adding few workers. Nonmanufacturing activity rose strongly in January as services continued to rebound.  How fast the economy rebounds from the spring collapse will depend on the size of the Covid relief package now moving through Congress. The key is delivering as much aid as possible to the households and businesses that need it most. 

If the $1.9 trillion plan, including the full health care segment, is enacted in the first quarter, the economy could return to the pre-pandemic level by the end of the year.  That would set the foundation for steady, balanced growth going forward. But much damage has been done, and permanent unemployment has risen sharply. Black low-income workers have borne the brunt of the structural transformation in the labor market. It will take longer for Black workers to regain the relative labor market position they reached before the pandemic struck.  It took nine years of recovery from the great recession for Black workers to make that progress.