The economic outlook as a result of the COVID-19 pandemic continues to be distressing and it may get worse for millions of Americans. Here’s are some reasons why.
Unemployment rose higher in three months of COVID-19 than it did in two years of the Great Recession (2007-2010), and the COVID recession is comparable more to the Great Depression of the 1930s, according to the Pew Research Center.
The employment situation remains dire. According to Department of Labor statistics, there were a total 28,059,349 people claiming benefits in all unemployment programs for the week ending Aug. 1. This statistic includes new unemployment benefits programs, such as Pandemic Unemployment Assistance, that were created due to the current crisis for gig workers, freelancers, the self employed and owners of closed business. From Aug. 8-22, the total of those collecting benefits under the PUA program rose to 14.6 million.
Media reports about new filings for unemployment need to be read carefully. For example, on Sept. 10, the Washington Post headline reported that “884,000 people filed for jobless benefits last week, the second week in a row of fewer than a million claims.”
However, the article contained additional information that could change the inference a reader might draw from the headline. “Another 839,000 had claims processed for Pandemic Unemployment Assistance (PUA) ... which have been rising for weeks. When added together, the numbers of new unemployment claims and PUA claims have risen for four weeks straight.”
Labor Force: According to the Bureau of Labor Statistics report on Sept. 10, the number of people working or seeking work “are historically low.” One reason for the lower participation rate, according to the Washington Post, is that “closed child-care facilities and in-person schooling represent a persistent impediment to returning to work, ...” especially for women.
Gross Domestic Product (the value of the goods and services produced in a country ) The GDP contraction (the amount the GDP becomes smaller) was 33% as measured on July 30.
Wall Street/Main Street. In the COVID economy, the financial markets are prospering. However, Wall Street is not Main Street. In general, the financial markets are forward looking, anticipating what a company’s profitability will be several years hence. However, Main Street is more near term. A struggling business or unemployed person finds no comfort anticipating that things may be looking up in the future.
Just as important, an increase in revenue or even profit does not necessarily translate into an increase in employment. For example, Target revenue for the 12 months ending July 31 increased by 10.16%, but the company’s total number of employees in 2020 (368,000) is only a 2.22% increase from 2019.
This column disagrees with the Federal Reserve, which has forecast that “unemployment will fall to 7.6 percent by the end of this year, and to 5.5 percent by the end of 2021.” In my opinion, the Federal Reserve has frequently been wrong and this forecast is overly optimistic. The weakened economy and its impact on people may outlast the federal government’s ability to mitigate pain and sustain a recovery. The federal government cannot continue borrowing trillions of dollars indefinitely.
Here are some of the reasons for my opinion:
1. We do not know when, if ever, a safe, effective vaccine will be approved and provide immunity from the coronavirus for a large portion of our country’s 33 million people. We do not know if herd immunity is even possible with this novel virus. The longer the pandemic lasts, the longer the COVID economy will be with us. Employers, large and small, private and public, that have been able to operate at some level so far may not be able to hang on indefinitely.
Fortune magazine has reported that since March, 21% of all U.S. businesses — most of them small- or midsize, considered the “backbone” of our economy — have closed for good.
2. People who regained their jobs in the hospitality and retail industries when their states reopened them could lose those jobs again if there is another virus-caused shutdown.
3. The clock is running out on industry-specific bailouts. For example, the airline industry has notified 75,000 employers that they may be laid off unless the $25 billion federal rescue package, (scheduled to expire on Oct. 1) is renewed.
4. The New York Times reports that job growth slowed further in August, “the latest sign that the economy’s spring momentum has faded — and a warning that the recovery could go into reverse this fall without further government support.”
5. According to the Bureau of Labor Statistics, “The longer a person is out of work the less likely they are to be hired in the future.” The number of Americans unemployed for 26 weeks or more is increasing.
6.The solution to some problems can result in other problems. For example, there are millions of people who may become homeless when rent and mortgage deferral programs end. But if the deferrals continue, landlords (including small ones) and mortgage lenders may suffer significantly, and even collapse, from lack of income.
7. A political factor is this: In this time of pandemic, we have a president who actively discourages simple ways to limit the pandemic, such as mask wearing, social distancing and not holding super-spreader events. Our current president denies science, and ignores reality. It is still possible the president we have now could be reelected. That would prolong or worsen the health crisis and thereby worsen the COVID economy.
To end on a positive note, American citizens can determine through their votes if a better person than the current president (namely his main opponent) will be elected.
Richard Fein’s purpose in writing his columns is to promote civil discourse on topics of public interest. Richard holds a Master of Arts degree in Political Science and an MBA in Economics. He can be reached at columnist@gazettenet.com.