U.S. Labor Market Recovery Ends Year With A Whimper
We have seen seven consecutive months of strong U.S. job re-creation, a surging housing market, and record high stock prices.
But as we were just starting to get comfortable with weekly improvements in initial and continuing jobless claims, the evidence is mounting that the U.S. labor market recovery is starting to reverse. Job losses are mounting yet again as COVID cases surge and business shutdowns and stay at home orders wash over major states like California and New York.
We are forecasting net U.S. job losses when the December payroll report is released on January 8th with an unemployment rate on the rise from already elevated levels. At this point, it is difficult to ascertain how bad the labor market reversal is bound to get, or how long it will last. Much depends on the course of coronavirus cases and how swiftly new Federal relief can reach individuals and households in need.
This isn’t how anyone wanted to close out 2020 or begin 2021. While newly arriving vaccines will brighten our economic future by the second half of next year, it looks like we could be in for a rough first quarter and the damage to the labor market is likely to linger even longer.
Once again we are focused on the weekly jobless claims data trying to ascertain how bad things are about to get for the U.S. unemployment rate and our economy. So far, the outlook isn’t looking too bright.
Total continuing claims from all programs jumped by 1.6 million in just one week at the end of November, going from a terrible 19.04 million to an awful 20.65 million. The number of people collecting unemployment claims through the pandemic unemployment assistance program alone increased by 689k during the last week in November to over 9.24 million claims. The last time total continuing claims jumped this much was at the beginning of August. Also, since this data is lagged by almost three weeks, we can expect these continuing claims numbers to only get worse over the next month. California and New York just recently issued their most restrictive business restrictions and stay at home orders so the worst is yet to come.
The New York Fed’s weekly economic indicator index is confirming the economic reversal taking shape in December. This indicator, designed to track changes in U.S. Real GDP in near real-time, had been on a steady improvement path since July and improved to -2.1% by the end of November. This measure has since deteriorated for the second week in a row in December to -2.7%. The last time this measure deteriorated for two consecutive weeks was during the April shutdown.
In short, economists’ forecasts, including my own, may not be downbeat enough, given the extent of the business shutdowns that are now re-occurring. News of vaccine approvals and deliveries, and resurgent stock market prices have likely lulled some analysts and investors into a false sense of economic optimism near-term.
Already, long-term unemployment is a big problem. Research has shown the longer people are unemployed, the more their skills degrade and the bigger the negative impact on lifetime earnings. This pandemic is nearly a year old and 3.94 million people are now classified as long-term unemployed, having been unemployed longer than 27 weeks. This is nearly double the number of long-term unemployed seen in the 2000-2001 recession and already almost 60% of the peak in long-term unemployed seen in the Great Recession.
If we don’t get this pandemic under control soon, no matter how much COVID relief Congress enacts before year-end, demand won’t be able to bounce back for consumer service businesses and the greater the long-term economic and financial scarring we will see.
To find out more, check out this week’s U.S. Outlook Report.NOTE: The next U.S. Outlook report will be published on January 8th following the holiday season. Happy Holidays to ALL our loyal readers!