The economic picture in the U.S. isn’t quite as bleak as it has been during 2020’s worst moments. But there’s no sign of a V-shaped recovery — and the latest data might actually hinder a much-needed congressional stimulus package. I spoke with business columnist Josh Barro about the murky outlook.
Ben: Friday’s monthly jobs report showed that the U.S. economy added 1.8 million jobs in July, slightly better than the consensus forecast. The unemployment rate ticked down to 10.2 percent — still grievously high by normal standards. What’s your overall impression of where things stand after digesting this data?
Josh: First of all, I would note that job market data is seasonally adjusted. Every year, schools lay off teachers for summer, retailers add temporary employees for Christmas, etc., and you want to adjust that out so you don’t say we’re going into a recession every January as those temporary retail workers get laid off. But in this pandemic context, where lots of things in the job market are extremely weird, those seasonal adjustments can be misleading. So the unadjusted number this month, which was a gain of 600,000 jobs, might be a better guide than the 1.8 million headline number. Still, what even the 600,000 figure shows is that the job situation was improving as of mid-July, albeit much more slowly than it was in May and June. The economy and the job market appear to have stalled out, but they’re not yet getting worse again. And we likely won’t be able to resume the rapid economic renormalization we were seeing in May and June until the virus is under much better control nationally.
Ben: I was a little surprised that there was really any improvement at all, given the dismal state of virus control in the country. What sectors are driving this (limited) recovery, and did any jump out at you as being particularly noteworthy? Also, is this being driven mostly by the Northeast, which has the virus under better control than the rest of the country?
Josh: The job recovery continues to be driven by service sectors that were extremely hard hit by the shutdown: restaurants, retail trade, health care. A lot of people have gone back to work in these industries. Auto manufacturing employment also continued to return. I’m not really surprised that the numbers continued to be positive, because the public and private measures taken in response to the worsening of the outbreak have tended to involve pausing or delaying reopenings, rather than reversing them. There are some exceptions — Texas closed bars that had reopened — but mostly I think the effect of the resurgence is showing up as jobs that weren’t created, causing this report to show just 600,000 net new jobs instead of millions.
As you note, there are parts of the country where virus conditions are acceptable and reopening continues at a strong pace. Restaurants in New York City reopened for outdoor dining in late June, so all those jobs are reflected in the July jobs report but were not in the June report. And even in harder-hit parts of the country, some jobs are coming back in these sectors. Disney said Walt Disney World’s reopening isn’t making as much money as they’d hoped, because a lot of out-of-town customers canceled their vacations due to the COVID surge in Florida. But the complex nonetheless reopened starting on July 11, creating a lot of jobs that were in this report but not the June report. My assumption is the August jobs report will include fewer jobs at Walt Disney World than it would have in a world where COVID was under good control and there were more customers, but will nonetheless include more jobs than were reported in July. And I think that experience is being repeated all over the country, with the COVID surge causing more of a stall in employment than a reversal.
Ben: Democrats and Republicans are at a seemingly unbridgeable impasse over the next massive stimulus package. Many in the GOP insist that the economic picture isn’t so bad as to need more stimulus, or an extension of unemployment insurance, or state and local aid, or much of anything. Do you think this at least somewhat positive report will make the prospect of a deal even less likely by adding ammunition to their position?
Josh: The problem with this report is it came in at the sweet spot where both sides can say it reinforces their position. If the report had shown job losses, I think Republicans would have gotten more nervous, feeling it had gotten harder to claim the recovery was on track and people could go out and get jobs. If the report had been a blockbuster like May or June, then the Republican argument would have been strengthened, and it would have been actually true that the job situation was strong enough to reduce the amount of stimulus needed. But this is a report Republicans can say is strong and Democrats can say is weak, with both probably actually believing their own claims.
The president clearly intends to issue some set of executive orders, after which he will claim to have “fixed” the relief issue without Congress. He won’t have done so, but if he feels good enough about the job situation, he may think that faking it is enough. I think Democrats’ assumption has been that real economic conditions will eventually force Republicans’ hand on aid, and I think that’s still true. The question is when. Household savings rates were at record highs in the spring as many workers received more pay than they had gotten while working. So I don’t know how quickly the reduction in unemployment assistance will actually show up as a meaningful reduction in economic activity. Households have more financial cushion than usual. But they also have much more reason to be fearful about their future finances than usual, so the lack of a stimulus bill may cause a lot of people not to spend money even if they have it. I think you will see increasing pressure from the business community — the airlines are already pushing for an extension of their bailout that ends on September 30, and they have a lot of support on both sides of the hill. But September 30 is almost two months from now, so this could go on a while.
Finally, I should note that Democrats have been quite intransigent about the size of this package, and it’s possible that the president’s intention to fake his way through this will cause them to become more flexible on terms, and that might also push us closer to a deal.