Back to work — but for how long?
Photo: Saul Loeb/AFP via Getty Images
The U.S. added 4.8 million jobs in June, by far a record for job gains in one month, as businesses reopened and employees returned to work after the depths of coronavirus-related disruptions in the spring. This report beat expectations and caused the Dow Jones Industrial Average to open higher by hundreds of points.
This is good news. That said, there are a couple of reasons to be worried about the near-term outlook for jobs, even if (for reasons I will discuss below) the outlook for jobs and the economy rebounding over the next year remains good.
One is that the report showed a significant increase in permanent job losers. Most people who have become unemployed during the crisis have been describing themselves to the Bureau of Labor Statistics surveyors as “on temporary layoff” — that is, they expect to return after some time to the same job they had lost. Unemployment fell sharply in May and June because many of these people did in fact return to work. The June unemployment rate was 11.1 percent, down from a peak of over 14 percent. But the number of people who want work but do not believe they have a specific job to return to has been going up.
Jed Kolko, the chief economist at the job-listing website Indeed, proposes an alternative measure called “core unemployment.” This includes unemployed people who were permanently laid off, quit jobs, or newly entered the labor force. It also includes so-called “discouraged workers,” who lack jobs and want jobs, but have not actually looked for work in the last four weeks. It does not include workers on temporary layoff. What this measure gets at is how much of the country is going to have to go out, sooner or later, and find a truly new job. This figure has been rising — it hit 5.9 percent in June, up from 5 percent in May. And it is likely to continue to rise, as some temporary layoffs turn into permanent ones and more businesses decide to close permanently.
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I would note, though, that while the rise in core unemployment is bad news, it was inevitable that it would go up, because some of the initially temporary layoffs were always going to become permanent, we just didn’t know which ones. A key question is whether core unemployment has gone up more than should have been expected. Yes, 5.9 percent is bad, but is it as bad as we might have expected it to be? The stock market’s positive move today is a suggestion that market participants had feared core unemployment would rise even more sharply.
The second area of concern is the deterioration in epidemiological conditions in parts of the country since the surveys that underlie the jobs report were conducted. The jobs report measures the employment situation as of the week of June 12, and is therefore already three weeks out of date. Texas and California have reimposed significant restrictions on business activities, especially related to restaurants and bars, and data from OpenTable provide a suggestion that consumer activity has been declining in areas where case counts are rising. Some other economic indicators, like credit-card spend, have started showing a worsening trend after more than two months of improvement. So there is reason to expect job gains to slow, or even modestly reverse, in July.
Data on weekly unemployment claims was also released today, as it is every Thursday. (The jobs report usually comes out on Friday but was released a day early due to the July 4 holiday.) The numbers of new and continuing unemployment claimants continue to look stubbornly high, but I have not been paying much attention to these reports because they have been plagued with data-quality problems, as individual state unemployment agencies have struggled to report accurate data at a time of unprecedented utilization. Another report that has merited a grain of salt is the ADP private payrolls report, put out monthly by the payroll-processing firm of the same name in advance of the official government report. ADP initially estimated a loss of 3 million jobs in May, far off the multimillion-job gain later reported by the Bureau of Labor Statistics, and this month essentially said “oops” and revised its May report to reflect nearly six million additional jobs than it had initially counted.
All told, this is mostly a good jobs report and should be described as such, even as it points to some areas of concern, and even as there are some reasons to expect the recovery to slow in the summer. The consensus of economic commentators on the pace of the economic recovery was mostly too pessimistic during the spring, and it’s worth learning from that; when the financial markets look detached from your own analysis of the economic outlook, pause and consider whether maybe the market is right and you are wrong. The initial arrival of effective medical treatments for COVID-19 may be only a few months away, so even a serious retrenchment in hospitality and other high-contact industries during the summer may not gravely affect the job situation for long. So there is still reason for cautious optimism about the economy and the job situation, despite some speed bumps that loom.
The Good News and the Bad News in the Latest Jobs Report
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