Days before the release of April’s jobs report, the White House was deploying its own version of good cop, bad cop. In this case, good economist, bad economist.
So while President Trump was talking up latent demand of consumers stuck at home and his belief that the economy is poised to take off like a rocket ship, some of his officials were warning of depression-level shocks to the system.
“What I’ve been talking about is getting out in front of the pack — that there are going to be a bunch of bad numbers for the second quarter,” said Kevin Hassett, the former chairman of the Council of Economic Advisers who recently returned to the White House to help plot a course to recovery.
The idea was to prepare the country for another slew of dire numbers brought on by the decision to close America and halt the spread of COVID-19, he told reporters at the White House, contrasting his talking points with the more optimistic words of trade adviser Peter Navarro.
“Peter and the president, and now even the Congressional Budget Office, are quite optimistic that the second half of the year will show a big bounce back,” he said. “I’ve been making it my job as a communicator within the White House to communicate about the things that are happening now, and we are looking at the biggest negative shocks we’ve ever seen.”
On Wednesday, the government estimated that the U.S. economy shrank at a 4.8% annual rate in the first quarter. More bad news is expected on May 8 with the publication of April’s jobs report.
Paul Winfree, a former Trump official who is now director of economic policy at the Heritage Foundation, said the weekly trend had been clear: 4 to 6 million people filing for unemployment benefits.
“So the jobs number will be pretty significant,” he said.
The jobless claims data released on April 25 showed a six-week rolling total of 30.3 million. A record 6.87 million claims were filed the week of March 28, but weekly claims have declined every week since then.
“CEA’s internal analysis of this more frequent data confirms that industries involving either group consumption, such as live events, travel, or restaurants, or group production, such as construction, took a relatively larger employment hit,” said Tomas Philipson, acting chairman of the Council of Economic Advisers. “Promising innovation is taking place in those industries on ways to provide their goods and services safer, and states opening up will enable such innovation to flourish.”
How quickly they can flourish is now the question as states lift restrictions. Watching Europe, where some countries are on a downward curve after their coronavirus caseloads peaked, and the first states to lift lockdowns may offer insight, said Winfree.
“If demand comes back in those places pretty quickly, if people start eating in restaurants at capacity, go for haircuts at capacity, things like that, then I think there will be [an] employment comeback pretty quickly in places where there are still mandatory closures in place,” he said.
At capacity, however, is the key. Winfree cited data collected by Homebase, which provides software to medium and small businesses, that showed work hours had dropped even in areas where nonessential activities had not been restricted. So while business activity dropped to about 55% of normal in areas with restrictions, it declined to about 70% without restrictions as individuals took their own decisions about the level of risk they would tolerate.
That means lifting restrictions will not simply fill restaurants and replenish employment, he said.
“What we are going to have to see is not just the businesses decid[ing] to increase hiring and whether or not they are going to open up once restrictions are lifted. What is going to drive it is whether or not demand comes back,” he said.
That will mean not just communicating safety provisions, either federal guidelines or how private businesses are protecting workers and customers, but thinking about how to ease workers back into work during a slow recovery.
Philipson said the CARES Act provided an additional $600 a week to all workers on top of existing unemployment insurance benefits, providing liquidity to the economy and providing a “bridge” for workers. But it means that almost two-thirds of workers could receive more from being unemployed than from working.
“As we move forward with efforts to safely stimulate the economy again, it is important to not tax work if we want more of it, particularly for states with a lower cost of living where the purchasing power of $600 is higher,” he said.
Tackling such a sudden shock to the economic system will need more than simply allowing businesses to open.
