The Corner

The Economy

Jobs: Good News/Bad News — and Wee Tim’rous Beasties

People who lost their jobs fill out paperwork to file for unemployment following an outbreak of the coronavirus, at an Arkansas Workforce Center in Fayetteville, Ark., April 6, 2020. (Nick Oxford/Reuters)

The headlines look just fine. No, more than fine.

CNBC:

Nonfarm payrolls soared by 4.8 million in June and the unemployment rate fell to 11.1% as the U.S. continued its reopening from the coronavirus pandemic, the Labor Department said Thursday.

Economists surveyed by Dow Jones had been expecting a 2.9 million increase and a jobless rate of 12.4%. The report was released a day earlier than usual due to the July Fourth holiday.

The jobs growth marked a big leap from the 2.7 million in May, which was revised up by 190,000. The June total is easily the largest single-month gain in U.S. history.

But:

. . . . because the government survey comes from the middle of the month, it does not account for the suspension or rollbacks in regions hit by a resurgence in coronavirus cases.

As CNBC noted, new jobless claims rose, and by more than estimated, but the most interesting number (to me) was highlighted by Felix Salmon for Axios:

Thursday’s jobs report showed 4.8 million jobs created in June, but those were overwhelmingly people beginning to return to places where they had been temporarily laid off. The number of “permanent job losers” went up, not down, rising 25% in just one month to 2.8 million from 2.2 million.

This, I think, underlines the point that you cannot just switch an economy off and then on, just like that. A “pause” on the scale and, possibly more seriously still, of the duration, that we have seen was always going mean that the recovery would fall very far short of the ‘V’ on which so many are pinning their hopes.

I cannot help wondering whether it might have been different if the U.S. had had something in place more directly akin to Germany’s Kurzarbeit arrangements (It’s well worth reading Standpoint’s Christopher Rauh on this topic).

If I had to guess (which is all, really, that anyone can do), the most likely shape of the recovery will be a ‘K’.  That won’t be good news for those in the wrong part of the K, or, for that matter, the GOP in November.

I’d also pay close attention to Salmon’s comments on where the money that is being pumped (theoretically) into the economy is going.

Short answer: Much of it is going nowhere, at least for now.

Salmon:

We’ve already thrown $6 trillion at this crisis. Much of it seems to have found its way into the stock market, which rose 20% in the second quarter. A new stimulus bill could add another $1 trillion or so. But far too much of that money just isn’t being put to effective use . . . .

If money flows into a bank and just sits there, that’s a sign of severe economic malaise — the “paradox of thrift.” In a healthy economy, individuals and corporations spend freely, and that free spending causes more money to come in tomorrow. In an unhealthy economy, cash gets hoarded and does not contribute to economic activity . . .

Americans saved 32% of their income in April, and 23% in May — numbers vastly higher than all previous records. Money-market funds now hold $4.7 trillion. Corporate cash balances are similarly surging, and now stand at well over $2 trillion. And the total amount of cash available for spending in checking accounts and other readily-accessible locations is now over $5.2 trillion.

Part of this reflects the simple reality that, particularly where discretionary spending is concerned, there are limited opportunities for spending with so much of the consumer economy shut down. But part of this may be simple caution. People do not feel secure enough to spend.

While, as Salmon notes, “insofar as the CARES Act was designed to ensure that America didn’t run out of money, it succeeded. And the individually-focused elements of the act — the $1,200 stimulus checks and the $600-per-week extra unemployment benefit — worked to cushion the economic blow that hit millions of Americans.”  That’s good, but the broader picture — that of a nervous consumer is unchanged.

And if the consumer is nervous, so are companies.

Salmon:

Much of the corporate aid in the act — from $500 billion in emergency relief for businesses to the Fed’s Primary Market Corporate Credit Facility — has ended up almost entirely untouched. Even the Main Street lending facility has lent almost nothing.

Keynes saw a revival in what he referred to as “animal spirits” as an essential element in any recovery.

The only animal I can see (borrowing shamelessly from Robert Burns) is a “wee . . . tim’rous beastie,” cowering in its burrow. That’s understandable — and it’s not good news.

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