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Dec 7, 2020

This Winter’s Pandemic Gloom Could End with a Springtime Economic Boom

Despite disappointing jobs numbers, there’s reason to be hopeful

The November jobs report, released by the Bureau of Labor Statistics (BLS) on Dec. 4, shows that job growth abruptly slowed, and most economists believe December’s numbers will be worse. Despite the bad news, there’s reason to be bullish on long-run job growth and economic recovery starting in the spring. We just have to get through the winter first.

Job Growth Stalls in November

The BLS reported that net nonfarm payroll jobs increased by 245,000 from mid-October to mid-November. That’s less than half the monthly jobs increase in the previous few months and less even than in November 2019. Many economists have focused on the trend of slowing job growth, and several forecast that if monthly employment growth continues at November’s rate, it will take more than three years for the labor market to recover to the pre-pandemic employment level.

However, the situation isn’t as dire as it sounds. As I wrote last month, permanent job growth hadn’t been slowing as much as was commonly reported. The interpretation of net employment changes has been skewed by recent census hiring and layoffs and by reductions in local public education staff attributed to the shift to online learning. In fact, permanent job creation (or resumption) in the private sector had been fairly steady since August, adding 900,000 to 1 million jobs each month.

The rate of employment growth did fall substantially in November, but the situation is still better than headlines would lead us to believe. An increase of 344,000 private-sector jobs coincided with the layoffs of 93,000 temporary census workers and 21,000 local public education staff. Since the census jobs were temporary, and because schools will likely be rehiring onsite staff when in-person instruction resumes, the loss of those jobs shouldn’t concern us as much as jobs permanently lost due to business closures or restructuring. In other words, the headline-grabbing BLS statistics on net employment changes don’t distinguish between permanent and temporary job gains and losses, so some additional context is necessary to fully understand the situation.

This jobs report offers another silver lining: the number of unemployed people and those who have permanently lost their jobs remained more or less steady, while the number of workers on temporary furlough continued to decline. This suggests that furloughed workers are still returning to their old jobs. While strong job growth and steady decreases in the unemployment rate would be preferable, we should probably appreciate whatever good news we get, given the nationwide surge in coronavirus cases.

Thank God for a K-Shaped Recovery

It’s obvious by now that the major thing holding the economy back is the threat of COVID-19 transmission. The much-maligned “K-shaped recovery” we’re experiencing is good evidence of this. The term refers to the fact that some workers and industries have seen a much faster recovery than the rest. For example, most higher-skilled office workers are continuing their jobs remotely, and the fact that the unemployment rate of those workers with a bachelor’s degree is only 4.2% reflects this. Meanwhile, the unemployment rate for those with only a high school diploma is 3.5 percentage points higher.

The reduced ability of higher-income households to travel, dine out or enjoy other types of entertainment has combined with the typical financial cautiousness seen in recessions to boost the average household savings rate (the proportion of unspent after-tax income) to record levels. As of October, the average monthly savings rate for 2020 was almost double that of 2019. Furthermore, because unemployed workers haven’t had the same opportunity to build up savings, the savings rate of those who have kept their jobs must be large indeed. This buildup of savings, combined with a pent-up demand for luxuries that the pandemic has kept us from, suggests that higher-income households won’t be shy about increasing spending after the vaccine becomes widely available.

As a result, those economists who fear that current job growth rates suggest that an economic malaise will linger for years are probably mistaken. The surge in spending that will come with widespread availability of the vaccine will carry with it a surge in demand for restaurant, entertainment, travel and hotel workers to supply those services. In fact, we could even see a noticeable uptick in the inflation rate for sectors such as restaurant dining, as eager customers try to make up for lost time and the demand results in short-term shortages.

The Double-Dip Recession Cometh?

Unfortunately, things are going to get worse before they get better. The new wave of COVID-19 cases seems to have already reduced employment gains, and that impact will only worsen. We should probably expect that the economic news from December and January will resemble that of March and April 2020, when the coronavirus outbreak first started substantially constricting economic activity.

But why don’t the November BLS data already show job losses, given that COVID-19 cases surged last month? It has to do with the timing of the labor market surveys used by the BLS. The survey is typically conducted during the second week of each month, meaning that the November survey occurred as cases were still rising. Furthermore, COVID-19 is spreading at different rates around the country, with the highest transmission rates occurring in more northerly states.

For example, October’s data were collected during a week in which the seven-day national average of newly reported COVID-19 cases was around 57,000 per day—more than September and August, but not substantially so. By the second week of November, the seven-day national average of new cases had risen to around 146,000 per day. The most recent seven-day average exceeded 180,000 cases per day.

In response, multiple states have reissued mandatory closing times for restaurants and bars; banned in-person dining again; restricted indoor fitness, entertainment and religious activities; implemented nighttime curfews; and tightened restrictions on private gatherings. A few governors have gone further by issuing stay-at-home orders, which prohibit nonessential work and travel.

It seems likely that California—home to 12% of the U.S. population and responsible for more than 14% of national GDP—will implement a stay-at-home order affecting most of the state in the next few days. That’s relevant because this week the BLS will be collecting the December labor market data for the next jobs report. The new restrictions on economic activity combined with consumers’ natural inclination to avoid many activities will slow job growth further, meaning that the coming months might even show a loss of jobs.

That said, December and January won’t be identical to March and April 2020. Even if the economic outlook seems bleak, we likely won’t see tens of millions of jobs lost like we did earlier this year—mainly because many of the jobs that were especially vulnerable to the pandemic still haven’t returned. Nor does the stock market seem primed for a sharp drop like that in February and March because the recent success of several vaccine trials suggests the pandemic might be brought to heel next year.

Those workers who haven’t been able to return to their jobs, or whose companies have gone out of businesses, will need help holding on through the winter, but the economy will likely blossom when vaccines become widely available in the spring.

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