The Labor Department just released June unemployment data. The jobs report provides another clue about the health of the economy and will be used by Congress as a key input into negotiations about the next round of coronavirus relief; however, don’t expect the unemployment data to divine whether there will be a second stimulus check or not.
June Jobs Report Expected To Show Modest Gains:
Last month’s surprisingly unemployment data showed that the U.S. economy had started to show signs of life. Economists anticipated that today’s report would show a continued step towards recovery with employment rising by an estimated 2.9 million, according to a Wall Street Journal survey. However, there was high variance in predictions, with estimates ranging from 2 million more jobs to 7 million, highlighting the multitude of countervailing variables and the difficulty of making predictions during the coronavirus pandemic. In reality, today’s report showed that the U.S. economy added 4.8 million jobs in June, well above estimates. It also pointed to a drop in the unemployment rate, which was 11.1 percent in June; it would be 12.1 percent if correcting for a persistent classification error.
Economic Recovery Sputtering, Not Surging:
However, economists are also cautioning that the June report may be the last good piece of economic data for a while and that declaring victory would be premature. They “warn that the June report may paint a misleading picture of a fragile economy as surging COVID-19 cases cut into the ground gained since the depression started in February,” according to The Hill. “Given the likelihood that states may have to re-shutter parts of their economies with the rise in cases, the job gains we saw last month may not last,” said. Elise Gould, senior economist at the progressive Economic Policy Institute.
Multiple data points also point to a slow, sputtering recovery, rather than a V-shaped rocket ship that President Trump has boasted about. “The flattening may reflect a pullback by consumers in states where cases of Covid-19 have shot up, the exhaustion of pent-up demand driven by stimulus checks, or simply a pause after the first wave of low-risk workplaces were allowed to reopen,” based on analysis by the Wall Street Journal.
June Unemployment Report Is A Lagging Indicator
The monthly unemployment report is a snapshot of the prior month and a lagging indicator. The BLS uses household and business surveys from the middle of the month, in this case June, to derive the unemployment rate. Usually, this isn’t a huge deal because there aren’t sharp swings, but that doesn’t apply in the time of Covid when the velocity of change can be dramatic. So much has already changed since June’s inputs were collected that the data may already be outdated in reflecting the current situation.
Resurgence of Coronavirus Means June’s Report Is Outdated:
The reality is that while we saw a near instantaneous surge in unemployment following lockdown, the recovery will be much more wobbly. Factors are so inter-related that a snapshot in time, which is what the jobs report is, won’t actually provide clarity unless we take measures to limit the coronavirus outbreak.
The June report won’t reflect the steep rise in coronavirus cases in the South and West, which, according to Moody’s Chief Economist, Mark Zandi, “happened largely after the jobs report surveys were taken during the week of June 12.” The U.S. reported close to 50,000 new coronavirus cases yesterday, which represented the fifth single-day case record in eight days. Multiple states, including North Carolina and Texas hit daily records.“This is a real threat to the nascent recovery,” Zandi said. “A healthy population is a necessary condition for a strong economy.”
The spike in cases has led many states and counties to pause or reverse their planned reopenings. Many have decided not to resume indoor dining service, have closed down bars that had re-opened, and shifted hospital capacity away from elective procedures to brace for the surge in ICU beds needed for Covid patients. Just yesterday, Michigan Governor Gretchen Whitmer closed down indoor bars in Michigan and McDonald’s announced that it would wait three weeks before it would re-open dine in services. “The virus drives the economics,” said Betsey Stevenson, who served on President Obama’s Council of Economic Advisers and is now a professor at the University of Michigan. If Covid-cases keep rising, “we’re not going to have people going back to work,” she added.
The June jobs report will likely be the last one that Congress uses to determine the next round of coronavirus relief. It will also likely be used by Republicans and Democrats to frame the debate over whether a second stimulus check or extended unemployment benefits are needed. However, don’t read too much into the report, especially if it shows signs of a modest recovery. Remember that the coronavirus outbreaks are accelerating and that so much has changed in just the last two weeks that the June data is practically obsolete.