Tuesday, July 7, 2020

Many Jobs Will Not Come Back

While the continued drop in the official unemployment rate and the record boom in new jobs in June look promising, it’s important to remember they’re just a snapshot of what the economy looked like in mid-June. And a lot has changed since then with COVID-19 infections spiking again in several states. That could have a seismic impact on several important sectors of the economy just ahead.

To understand why the number of permanent job losses continues to increase, we need to go back to a Labor Department (DOL) issue when the DOL admitted it did not count millions of Americans who had been furloughed as being unemployed. Instead it classified them as “employed but not at work.”

The DOL just assumed all or most of those workers would be returning to their jobs as soon as the COVID-19 pandemic was under control. Yet as we all know, many of those former jobs are never coming back, and not counting them as unemployed was a “misclassification error,” the Labor Department admitted.

While the DOL has since said it is working on the problem, it has also admitted that the unemployment rate would have been considerably higher in April, May and June if it had counted most of the furloughed workers as unemployed. April’s jobless rate would have been 19.5% instead of the 14.7% reported; May’s jobless rate would have been 16.3% instead of 13.3%; and June would have been 12.0% instead of 11.1% reported last Friday.

The DOL says it is addressing the misclassification error by gradually decreasing the number of “temporary” job losses and increasing the number of job losses classified as “permanent.” That sounds well and good until you read in last Thursday’s unemployment report that the DOL still considers 78.6% of all jobs lost in the last four months are temporary.

The DOL is still way too optimistic about the number of job losses that will be coming back.

And the increase in permanent job losses could be significant, almost certainly if the current spike in COVID-19 infections continues to surge or even plateaus at the current level. This will determine whether we remain in a deep recession or begin to see a recovery.

Most forecasters seem to believe the last two better than expected jobs reports mean we’ve at least turned the corner on the recession if not recovered entirely. But if you look beneath the headline jobs numbers, you find we’re nowhere near out of this recession.

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