Chief Economist Scott Brown discusses current economic conditions.
The June job market report and other indicators remained consistent with an unprecedented steep drop in economic activity in March and April, followed by a sharp-but-partial rebound in May and June. Many of these data were collected before the recent surge in COVID-19 cases. A return to a full lockdown appears unlikely, but self-imposed social distancing should contribute to a more modest pace of improvement.
As state economies began to re-open, a rebound in jobs was anticipated. Gains came a little earlier and stronger than expected. Nonfarm payrolls were reported to have risen by 4.80 million in June, following a 2.70 million increase in May. These are record monthly increases. However, payrolls are still 14.64 million (-9.6%) below February’s level. Leisure & hospitality added 1.48 million jobs, with about 70% of those in restaurants. Retail added 740,000. Manufacturing rose by 356,000 (196,000 in motor vehicles). Yet, each of these sectors were far below year-ago levels (-39.8% in leisure & hospitality, -12.5% for retail, -8.6% in manufacturing). The payroll survey covers the pay period that included the 12th of the month, hence is weighted toward the first half of the month (when the number of new COVID-19 cases was around 20,000 per day – it’s now at 50,000).
The unemployment rate fell to 11.1% in June (from 13.3% in May and 14.7% in April). Those on temporary layoff should be counted as “unemployed, on temporary layoff,” but many were categorized as “employed” in the last few months. This classification issue led to an under- reporting of the unemployment rate by five percentage points in April (the unemployment rate should have been closer to 20%), three percentage points in May, and (according to the BLS) at most one percentage point in June. Details from the household survey showed a sharp (but partial) drop in those on temporary layoffs in June, while those on permanent layoffs have increased. That likely reflects a broadening of labor market weakness beyond those sectors immediately effected by the pandemic.
This has been a recession like no other. The pandemic led to a sharp decrease in economic activity. We should see a rebound as the pandemic passes. However, it’s clear that that passing won’t be anytime soon. The U.S. has been unsuccessful in containing the virus, which means that our re-opening is going to take a lot longer. None of that should be a surprise. We were warned. Europe countries have had some issues re-opening their economies, but they did a much better job in tamping down the number of new cases and have put in place procedures to trace contacts.