Viruses have a nasty way of lingering and COVID-19 is no different. Despite two strong months of jobs gains in May and June, the uptick in cases in the South and West prompted municipalities to tighten rules; caused consumers and
businesses to slow down their efforts to return to pre-pandemic behavior; and slowed down job growth in July.
The economy added 1.8 million jobs in July, down from June’s 4.8 million and lower than May’s 2.7 million. The unemployment rate slid from 11.1% to 10.2% (the peak was 14.7% in April) and the broader rate edged down to 16.5% from 18% in June, and from a peak of 22.8% in April.
Before the release, estimates were all over the place, because it was unclear whether the survey period for the monthly report would reveal the extent of the slowing momentum in the labor market. Of course in “normal” times, an increase of 1.8 million jobs would be cause for celebration — and indeed, job gains are better than job losses. However, in this extraordinary period, 1.8 million more jobs still leaves the economy with 12.9 million fewer that existed in February. At the current pace, it would take well into 2021 to recoup the 12.9 million jobs lost since February.
A peek underneath the hood of the report exposes some other problems. According to economist Joel Naroff, the June-July period “could be the high point for the improvement in the economy…For example, restaurants, clothing stores and personal services/laundries accounted for over fifty percent of the total private sector increase. That is not likely to be duplicated given what is happening across the country.”
Diane Swonk, the chief economist at Grant Thornton, points out that government hiring was a surprisingly robust at 301,000, but “the much stronger-than-expected jump in public sector employment was misleading. A quirk in how the data was seasonally adjusted turned a decline in state and local government payrolls into a gain.” As it turns out, fewer state and local government education employees were let go at the end of the school year because many had already been furloughed during the lockdowns a few months ago.
Additionally, there continues to be concern about the viability of many small businesses, especially those that tapped the Paycheck Protection Program to rehire staff. Some of these firms may do an about-face and be forced to re-layoff their workers. A survey by Cornell University found that 31% of returning workers have lost their jobs for a second time, and 26% say their bosses have put them on notice that they could be laid off again.
Meanwhile, during the past few weeks, you have heard some lawmakers bemoan the extra $600 enhanced unemployment benefit, claiming that it acts as a disincentive from seeking a new job. New research from Yale University debunks that idea, finding no correlation between receiving larger benefits and looking for a job. In fact, those receiving unemployment benefits search intensely for new work, and their effort appears to be somewhat greater than that of the unemployed not receiving benefits. What’s the biggest barrier to getting a new job? It’s not extra unemployment checks, but the obvious fact that the virus has vaporized millions of positions.
A separate working paper from the National Bureau of Economic Research (NBER) found that extended unemployment benefits “allows workers to search longer and eventually find jobs better suited to their skills.” The ability to be patient has downstream effects, because a worker can “turn down other jobs that may also be better suited for others.” The authors found that the cushion of money and time increases labor market efficiency and productivity overall.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected] Check her website at www.jillonmoney.com.