Friday morning’s Bureau of Labor Statistics announcement that the March unemployment rate jumped to 4.4% from February’s 3.5% and that the number of people added to payrolls plummeted from February’s high of 253,000 added to 701,000 lost confirmed what many people expected: It’s a new world.
We are no longer living in an employment Camelot where labor is tight, practically everyone who wants a job has one, and almost every business seems to have a “now hiring” sign in the window.
Let’s assess the damage. Let’s also remember that this is a unique crisis in which the damage arrived quickly and cut deep but doesn’t rule out a fairly effective recovery if we hold tight.
We have been hit by a virus tsunami. In fact, the official unemployment number may mask how bad the unemployment situation really is. The unemployment rate is determined from a telephone survey of 60,000 households taken during the first few weeks of each month, and the first half of March looked a whole lot better than the last half. When the survey is conducted, the Bureau of Labor Statistics caller asks if there is anyone in the household who both is out of work and has looked for work in the last four weeks. If so, that person is counted as unemployed.
Given the state of our world in March, it’s clearly possible that a lot of people who had just been laid off did not think the layoff was permanent or had little doubt that they would find another job. If so, they probably thought differently as daily news deteriorated throughout the month. That’s why we should ready ourselves for the next report, where April will look a whole lot worse than March.
Just as the March report does not give an accurate picture of the employment situation, neither will April’s — but for different reasons. The April report will be describing conditions in a strange world where a much larger host of people has been ordered not to work. After all, more than 250 million people are now living under stay-in-place orders, and far more restaurants, bars, department stores, manufacturing facilities, and practically all crowd-generating activities are shuttered. Under those conditions, what does it mean when one is asked, “Have you looked for work in the last four weeks?” How do you look when everything is closed?
When employment data for April, May, and June roll in, we will see a clearer picture of what a pandemic-stricken economy can look like. Analysts with the Economic Policy Institute and Capital Economics expect to see layoffs affecting 14 million people and a 12% unemployment rate in the second quarter. (In February, we had 158 million employed and a 3.7% unemployment rate.) Morgan Stanley predicts 17 million jobs will go down the tubes in the second quarter, and GDP growth for all of 2020 will settle in at -2.3%. Wells Fargo economists predict that 2020 will see a -2.4% GDP growth and 7% unemployment by year’s end, with serious bumps in the numbers occurring in the year’s second and third quarters.
While these forecasts are similar, each one is affected to some extent by varying interpretations of the $2 trillion federal relief program and how it might function.
So what about the Camelot economy? When will we find our way back to that wonderful “congenial spot for happily-ever-aftering,” where the unemployment rate rested in the mid-threes and GDP growth accelerated at better than 2% annually? Once the immediate threat has passed and we have 2020 under our belts, will we find ourselves struggling to rebuild and perhaps attempting to rediscover what we lost?
A large part of the answer to these questions depends on the effects of the $2 trillion relief program and the extent to which it can provide balm to a partially closed economy. I think relief spending will matter a lot, that our economy will start reknitting in the last part of 2020, and that 2021 will find us out of the woods — but not in the employment Camelot we knew in 2019.
No, we will be building a new Camelot, and it will take time. But who knows? It may eventually be an improvement on the old one.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
