The official unemployment rate published by the Bureau of Labor Statistics (BLS) dropped 0.5% to 7.9% in September 2020. However, in the BLS’ Employment Situation Summary report, the Household Survey revealed that of the 970,000-person decrease in the number of unemployed individuals, only 275,000 attained new employment. The Not in the Labor Force (NILF) category increased by 879,000. The initial consequence of the pandemic-shuttering of the U.S. economy was for businesses to “temporarily” lay off employees. Then the government stimulus (Paycheck Protection Program) provided forgivable loans to employers as long as a majority of the funds were used to pay employees. Employers hired-back many of the laid-off workers in order to qualify for the funds. Now some are being let go again, and the question becomes how many are going to be permanent? (See third graph below).
Will debt-based government stimulus now be required to fix the labor issue? Please proceed to The Details for my thoughts.
“Government cannot make man richer, but it can make him poorer.”
–Ludwig von Mises
COVID-19 continues its stranglehold on what were already slowing global economies pre-pandemic. Some U.S. cities as well as foreign countries are once again contemplating shutting down. The possibility for a quick recovery would have been difficult at best considering the pre-pandemic slowing and debt accumulations. These have only compounded with the introduction of the “plague.” The long-term economic impact of shuttering economies combined with the unprecedented increase in government debts, both to-date and to-come, will be significant. In this missive, I will dig into the employment data in an attempt to provide an accurate picture of the labor environment.
The official unemployment rate published by the Bureau of Labor Statistics (BLS) dropped 0.5% to 7.9% in September 2020. However, in the BLS’ Employment Situation Summary report, the Household Survey revealed that of the 970,000-person decrease in the number of unemployed individuals, only 275,000 attained new employment. The Not in the Labor Force (NILF) category increased by 879,000. (This number also includes those from the increase in the working-age population who are not in the labor force.) The NILF number has grown from about 79.3 million at the start of the Great Recession in December 2007, to 95.7 million at the end of last year, December 31, 2019. This year, the NILF category has increased further to almost 100.6 million. The increase in NILF is inversely correlated to the Labor Force Participation Rate or the percentage of the working-age population who are employed or seeking work. The graph below illustrates the change in both the Labor Force Participation Rate and the Unemployment Rate. Notice the Labor Force Participation Rate bounced off of the pandemic bottom but has again turned back down.
The initial consequence of the pandemic-shuttering of the U.S. economy was for businesses to “temporarily” layoff employees. Then, with the passage of the Paycheck Protection Program (PPP), employers were provided forgivable loans as long as a majority of the funds were used to pay employees. Thus, employers hired-back many of the laid-off workers in order to qualify for the funds. Currently, most of the PPP money has been spent, and without a new plan to provide funds for payroll costs, as weak demand continues to hurt businesses, employees are again being laid-off. The question now becomes are these layoffs going to be permanent? The following chart from Zero Hedge shows the level of job cuts determined by outplacement firm, Challenger, Gray & Christmas, compared to the Great Recession and other periods.
The graph below highlights the number of permanent job losses compared to prior periods shown as a deviation from 1-year rolling lows.
The following graph from ECRI shows the change in employment over the first two years of the Great Recession compared to the current COVID-19 crisis. Notice the employment level remains below that at the bottom of the Great Recession.
My preferred method for examining the employment picture is to use the Employment-to-Population Ratio. This ratio does not understate unemployment due to those NILF. Instead, it merely looks at those employed divided by the working-age population. This ratio was 62.7% on December 31, 2007. The percentage employed at the end of last year, December 31, 2019, was a lower 61%. Presently, as of the last Employment Situation Summary, the percentage of the working-age population employed has dropped further to 56.6%. The graph below illustrates the Employment-to-Population Ratio from 2000 forward.
The ratio of the number employed today is still significantly below the bottom of the Great Recession. The number of unemployed workers today is up 64% from the start of the Great Recession in December 2007. Further stimulus could provide another temporary boost to employment; however, the flip side is a correlating increase in debt. The drag on the future economy due to current debt levels could prevent a return to pre-pandemic employment levels.
Notice in the graph below, after the initial plunge in employment due to COVID-19, the monthly increase in payrolls has been decreasing as the stimulus wears-off.
As I stated in previous Updates, the combination of the pandemic with debt-based stimulus at levels never before dreamed, could result in a need for perpetual stimulus to provide short-term bursts in economic activity. Until the debt crisis is dealt with, the temporary bursts of activity will be just that…temporary.
The S&P 500 Index closed at 3,348 up 1.5% for the week. The yield on the 10-year Treasury Note rose to 0.69%. Oil prices decreased to $37 per barrel, and the national average price of gasoline according to AAA remained at $2.19 per gallon.
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