In March, the government reported February’s unemployment rate of 3.5%, equal to the lowest level in a half century.
Barely two weeks later, the coronavirus struck. July’s unemployment rate of 10.2%, while almost a point below that of June, was nearly three times that of February. And it’s not likely to hit that number for a long, long time.
Three factors will weigh on the labor market for months, perhaps years to come:
1. Just as businesses ramp up in good times, bringing on new employees, opening new outlets and increasing wages and benefits, the process reverses itself during a downturn or recession. Companies that have survived the immediate effects of the shutdown that began in earnest in March are not eager to go back to the way things were. Many have found they can do with less and have become more efficient, learning to deal with employees working remotely and without offices and corporate overhead. While many furloughed workers have been brought back, many also have been deemed surplus to requirements.
Political Cartoons on the Economy
“Companies always hire back their best workers first,” CUNA Mutual Group senior economist Steve Rick points out. “But a lot of firms will take this opportunity to lay off their least productive workers.”
2. There will be fewer jobs available for those seeking them. In January, the ratio of unemployed workers to open jobs stood at 0.8%, meaning there were more than enough jobs for everyone who wanted one. But since the pandemic struck in March, that number has risen as high as 4.6% and is currently in the mid-3% range.
Elise Gould, senior economist at The Economic Policy Institute, wrote after the July jobs report came out that “because so many jobs were lost in March and April, we are still 12.9 million jobs below where we were in February, before the pandemic spread.
3. The demise of “zombie” firms. When times are tough, the weakest companies suffer the most. Maybe they have been limping along on borrowed time, the kindness of creditors, or just relying on whatever remaining cash they have on hand. Benefits are cut, underperforming divisions are sold or shuttered and workers are laid off. Eventually, time runs out and the businesses file bankruptcy or close up shop. More than two dozen iconic retailers – among them, Lord & Taylor, Brooks Brothers, J. Crew and Neiman Marcus – have filed for bankruptcy this year. But the bleeding does not stop there. These brand name retailers are often anchor tenants in major shopping malls, leaving them empty and their owners short of rent. A similar scenario is playing out down market, in the nation’s thousands of strip malls.
“The retail apocalypse will continue,” Rick adds. Other industries facing a reckoning include airlines, car rental companies and hotels.
Collectively, the leisure, hospitality and retail industries employ roughly 16% of the total workforce. But as firms in these industries close, the knock-on effect continues to the banks that lent them money, as well as the firms that provide services such as cleaning, pest control and security. As fewer people find jobs, consumer spending will be crimped and the economy will struggle.
“Employment gains slowed in July and are poised to weaken further in August,” Grant Thornton Chief Economist Diane Swonk wrote recently. “The surge in employment at the state and local levels will no doubt reverse, given gridlock over a federal aid package including much-needed funding for the states. The fact that many school districts have decided to stay online in the fall semester will take a toll on hiring for education, come August.”
Longer term, the Congressional Budget Office is forecasting the unemployment rate averages 6.9% and 5.9% for 2022 and 2023, respectively, and 4.4% annually from 2025 to 2030.