When Trump promised to end “American carnage” in his inaugural address, he had no idea he’d end up presiding over mass death and economic collapse, but history can be a brutal ironist. Here’s a look at the bloodletting in the job market, which is central to most people’s economic well-being.
Most of the time, the monthly employment report from the Bureau of Labor Statistics is of interest mostly to econogeeks, but the April 2020 edition, released on Friday, May 8, was like no other since the end of World War II. The scale of job loss and the rise in unemployment had nothing even remotely like a precedent.
Employers axed 20.5 million jobs in April, making for a decline of 12.9% from a year earlier. That annual loss is a record by a wide margin. The previous record was -7.6% in September 1945, during the postwar demobilization. Total employment is back to where it was in February 2011, which was itself back to March 2004 levels, thanks to job losses in the Great Recession (a name that might have to be retired) and its aftermath. And that March 2004 level was the same as February 2000’s, because of the 2001 recession and the jobless recovery that followed it. So, employment now is the same as it was 20 years ago even though the adult population is up 48.3 million, or 23%. (See graph below.) We’re almost certain to see giant losses for May when the numbers are released on June 5.
Almost every sector and subsector lost jobs, and lots of them. Manufacturing lost 1.3 million; retail, 2.1 million; professional and business services, 2.1 million; education and health, 2.5 million (including 1.4 million in health care, a bizarre development during a massive health crisis); and leisure and hospitality, dominated by bars and restaurants, 7.7 million. Government was off almost a million, all of it at the state (-180,000) and local (-801,000) levels. It’s distressing that at a time when people need public services, they’re being radically shrunk, and a sector that is supposed to counter recessions by maintaining stable employment is acting instead as a downward accelerant. During the worst phases of the Great Recession, state and local government employment declined at an annual rate of around 1.5%; April’s level was off 4.5% from a year earlier. Austerity at the state and local level undermined the early Obama stimulus package, and continued as a drag on growth throughout the expansion.
Weirdly, average hourly earnings rose an eye-popping 4.6%—for the month, not the year, over 15 times the 2018–2019 average. The reason is that job losses are concentrated among lower-paid workers, which pushed up the average. It’s likely job losses will climb up the income ladder in coming months.
These figures come from a survey of employers, known as the establishment survey. The BLS also conducts a survey of people, known as the household survey. It was, if anything, even grimmer than its establishment counterpart. It found job losses a million higher (the two surveys often differ in the short term, though they always wind up telling the same basic story). The employment/population ratio, the share of the adult population working for pay, cratered, falling from 60.0% in March to 51.3% in April, an all-time low. (See graph below.) In the 1950s, before the mass entry of women into the labor force, it occasionally got as low as 55%. Its all-time high was 64.7% in April 2000. It never got anywhere near that high again, either in the early 2000s or in the 2009–2019 expansion, because of a mix of an aging population and weak economic growth. If people were employed at that rate now, there’d be almost 35 million more working.
Unemployment soared, the rate rising more than 10 points from 4.4% to 14.7%. As the graph below shows, that’s well above previous peaks since the end of World War II. It took almost two years after the 1929 stock market crash for unemployment to hit 15%; we’ve done it in two months.
The BLS reports a fairly obscure set of stats called employment flows, which measure moves in and out of employment and unemployment. They report that almost one in six people who were employed in March lost their jobs in April.
As sharp as the April increase was, it was partly masked by massive labor force withdrawal. You have to be actively looking for work to be counted as unemployed, and no doubt some people either saw no point in searching, or no way to do it with so much shut down, so they weren’t counted as unemployed. Also, as the BLS reported, many people who were actually laid off reported themselves as “absent from work.” Had they reported themselves as laid off, the unemployment rate would have been close to 20%.
The BLS also reports a broader measure of unemployment, called U-6, which includes people who are working part-time who want full-time work and those who’ve given up the job search as hopeless. That rose from 8.7% to 22.8%, shattering its previous record of 17.2%, set in April 2010. The histories of the headline unemployment rate, aka U-3 (the one discussed in the previous paragraph) and the broad U-6 rate are graphed below. Also shown is a predecessor of the U-6 rate, known as U-7, which was reported from 1970 through 1993. The pure verticality and magnitude of the April spikes read like a poke in the eye.
Of course, employment and unemployment vary widely by demographic, as the graphs below show. While every category saw a sharp rise in unemployment and fall in employment, the white and educated started from better positions and remain there. But things stink for them too.
If you’re desperate to find a cheering note buried amidst all the red ink, almost all the unemployed report themselves as being on temporary layoff rather than as permanent job losers. Similarly, a Washington Post–Ipsos poll reports that 58% of laid-off workers think it’s “very likely” they’ll get their old jobs back, and another 19% say it’s “somewhat likely.” One hopes this is based on sound reasoning and not wishful thinking.
Judging from the behavior of the stock market, which has recovered much of the ground it lost in the sharp selloff in February and March—and which is actually slightly above where it was a year ago—Wall Street thinks this damage is a brief bit of unpleasantness that will soon pass and come fall, it’s back to the races. I don’t get this. Thousands, maybe millions, of small and mid-sized businesses won’t be able to survive months with no revenue, and so won’t be around to reopen. Second and/or third waves of viral attacks, which are quite possible, would make a quick rebound even less likely. We’re in lots of trouble, and no one in charge knows how to get us out of it.
Data note The monthly unemployment figures for 1929–1938 were assembled by the National Industrial Conference Board, predecessor of today’s Conference Board, a think tank and data shop. They’re available from the NBER. The modern employment statistics system originated in the late New Deal, as a project of the Works Progress Administration.
More Larry Summers content. with him much in the news as a Biden adviser.
Determined to delay the serious business ahead of us a few moments more, I signalled to the bartender for a whiskey of my own and said, ‘Before you tell me about my “mistake”, let me say, Larry, how important your messages of support and advice have been in the past weeks. I am truly grateful. Especially as for years I have been referring to you as the Prince of Darkness.’
Unperturbed, Larry Summers replied, ‘At least you called me a prince. I have been called worse.’
For the next couple of hours the conversation turned serious. We talked about technical issues: debt swaps, fiscal policy, market reforms, ‘bad’ banks. On the political front he warned me that I was losing the propaganda war and that the ‘Europeans’, as he called Europe’s powers that be, were out to get me. He suggested, and I agreed, that any new deal for my long-suffering country should be one that Germany’s chancellor could present to her voters as her idea, her personal legacy.
Things were proceeding better than I had hoped, with broad agreement on everything that mattered. It was no mean feat to secure the support of the formidable Larry Summers in the struggle against the powerful institutions, governments and media conglomerates demanding my government’s surrender and my head on a silver platter. Finally, after agreeing our next steps, and before the combined effects of fatigue and alcohol forced us to call it a night, Summers looked at me intensely and asked a question so well rehearsed that I suspected he had used it to test others before me.1
‘There are two kinds of politicians,’ he said: ‘insiders and outsiders. The outsiders prioritize their freedom to speak their version of the truth. The price of their freedom is that they are ignored by the insiders, who make the important decisions. The insiders, for their part, follow a sacrosanct rule: never turn against other insiders and never talk to outsiders about what insiders say or do. Their reward? Access to inside information and a chance, though no guarantee, of influencing powerful people and outcomes.’ With that Summers arrived at his question. ‘So, Yanis,’ he said, ‘which of the two are you?”
Instinct urged me to respond with a single word; instead I used quite a few.
‘By character I am a natural outsider,’ I began, ‘but,’ I hastened to add, ‘I am prepared to strangle my character if it would help strike a new deal for Greece that gets our people out of debt prison. Have no doubt about this, Larry: I shall behave like a natural insider for as long as it takes to get a viable agreement on the table – for Greece, indeed for Europe. But if the insiders I am dealing with prove unwilling to release Greece from its eternal debt bondage, I will not hesitate to turn whistle-blower on them – to return to the outside, which is my natural habitat anyway.’
‘Fair enough,’ he said after a thoughtful pause.”
“Powering through the watery curtain in pristine solitude, I took stock of the encounter. Summers was an ally, albeit a reluctant one. He had no time for my government’s left-wing politics, but he understood that our defeat was not in America’s interest. He knew that the eurozone’s economic policies were not just atrocious for Greece but terrible for Europe and, by extension, for the United States too. And he knew that Greece was merely the laboratory where these failed policies were being tested and developed before their implementation everywhere across Europe. This is why Summers offered a helping hand. We spoke the same economic language, despite different political ideologies, and had no difficulty reaching a quick agreement on what our aims and tactics ought to be. Nevertheless, my answer had clearly bothered him, even if he did not show it. He would have got into his taxi a much happier man, I felt, had I demonstrated some interest in becoming an insider. As this book’s publication confirms, that was never likely to happen.
With Larry Summers in the news as a Biden advisor, a check out this recounting of my encounter with him in April 2000.
I’ve been hating on the Democratic party in public for almost 35 years, in private for longer than that. But I have to say, and I don’t see how anyone could deny this, if a Democrat were president now there just wouldn’t be anywhere near as many dead and doomed people. The CDC might not have been richly funded, but it certainly wouldn’t have been eviscerated, with talented people not wanting to go anywhere near it. The pandemic task forces wouldn’t have been disbanded, and probably would have been listened to from fairly early on.
Given the choice between neoliberal technocrats and proudly ignorant yahoos, I have to go with the former. I’m not going to stop agitating for a world where we could have better choices, but as long as it’s a forced binary, as they say in the polling business, it’s an easy answer.
Sorry if this disturbs anyone. It sorta disturbs me. But you have to be honest with self and others.
Based on historical patterns going back to 1948, Biden should beat Trump by almost 20 points in the popular vote. Of course, if anyone could blow this, it would be Biden.
Back in 1996, when I was still doing Left Business Observer, I came across a 1993 paper by Andrew Gelman and Gary King, “Why are American Presidential Election Campaign Polls so Variable when Votes are so Predictable?” It cited research showing that despite all the volatility in the opinion polls during the campaign, the results were fairly easy to foresee months in advance based on some fairly simple models.
Inspired by that paper, I developed my own version of such a model—and, given my statistical skills, it had to be a very simple model. It had just two inputs: the president’s approval rating and the yearly growth in real after-tax income per capita (aka disposable personal income, or DPI), both measured in the second quarter of the year before the election. It all worked surprisingly well. I’ve updated it a few times over the years with subsequent elections, and just ran the numbers for 2020, which is where the prediction of a Biden landslide comes from.
A few more details. The model predicts the share of the popular vote that “should” be earned by the incumbent party (which may or may not be an incumbent person) and by the challenging party. What’s shown below is the difference between the two, actual and as predicted by the model.
While it was sometimes off on the margins—though, all things considered, it’s pretty good—it still predicted the correct result in 16 of the 18 cases. The only ones it got wrong were 1960 (in which there were suspicions, never proven, of vote fraud to Kennedy’s benefit and Nixon’s detriment) and 1968, when the wily Nixon got his revenge by beating the hapless Humphrey.
At the bottom of this page is the history of the inputs and results. Approval is average Gallup approval rating for the president from April through June of the election year (which isn’t necessarily the approval for the candidate: for example, the 1960 approval is Eisenhower’s in the spring of that year, not Nixon’s); DPI is the yearly growth in after-tax income per capita for the second quarter, from the national income accounts; and margin is the difference between the incumbent party’s share of the popular vote and the challenger’s. The equations are shown at the bottom. As I said, it’s a simple model.
For 2020, I’ve used Trump’s current Gallup approval rating and an estimate of an 8% decline in real DPI per capita from a year earlier. Since the New York Fed’s GDP tracker is predicting an almost 11% decline for the quarter so far, -8% is a conservative estimate. It shows Biden beating Trump by close to 20 points, or a 60/40 popular vote. At 0%, which is virtually impossible, it still would have Biden winning by over 4 points.
I should attach some consumer warnings here. The model predicts the popular vote, so it called Gore the winner in 2000 and Clinton in 2016 (which, if we had a sane electoral system, they would have been). And 2020 is a completely wacko political year, featuring a lifeless challenger to a mad incumbent in the midst of a pandemic-induced economic crisis. But the conclusion here is that no matter how things look now, if we have an election, it’s Biden’s to lose, a formulation that admittedly may inspire more doubt than confidence in the prediction.
[Apologies that the table is a graphic and not text; WordPress is not table-friendly.]
This morning the Bureau of Labor Statistics reported that 701,000 jobs disappeared in March. Economists had been expecting about a third that number. Hardest hit were bars and restaurants, accounting for 60% of the loss. Also hit hard: retail, temp work, and, shockingly, health care.
One reason job loss expectations were relatively low was that the survey of employers on which the count is based is done during the week containing the 12th—in this case, between March 8 and 14. (No one is expecting anything but a torrent of bad news in the coming weeks and months.) As the graph below shows, survey week came before the surge in applications for unemployment insurance from 282,000 in the week ending the 14th (survey week) to 3.3 million the following week and 6.6 million during the week ending the 28th. It also came before the wave of stay-in-place orders, which began on March 20. Within a week, 20 states and 4 cities issued such orders. (There’s a helpful timeline here.) It’s striking that employers began shedding workers ahead of the closures, not a good portent for the April numbers.
Expectations are that the unemployment rate, which rose 0.9 to 4.4%, will rise by at least 10 points and possibly 20 or more over the next month or two. The broad measure of unemployment, U-6, which accounts for discouraged workers (those who’ve given up the job search as hopeless but have looked in the past year) and people working part-time who’d like full-time work, rose 1.7 point to 8.7%. There is just no precedent for this rate of job loss.
The monthly surveys of households, on which the official unemployment rates are based, began in 1948, so we don’t have good stats for the slide into the Great Depression. We do have highly unofficial monthly estimates of the unemployment rate assembled by the predecessor of today’s Conference Board, available from the National Bureau of Economic Research. Those are graphed below. At the time of the great stock market crash, October 1929, the jobless rate was 2.3%. A year later it was 9.0%. It took over two years to break 20%, finally peaking at 25.6% in May 1933. By some forecasts we’ll be there before summer.
Goldman Sachs attracted a lot of attention with its forecast that US GDP will be off 34% in the second quarter of this year. That is a very big number. It’s three-and-a-half times the worst quarter in US economic history since quarterly GDP stats began in 1947. (That quarter, by the way, was the first of 1958, the onset of a sharp recession, which featured, among other things, an “Asian flu.”) Here’s a little perspective on that number.
That 34% figure is annualized, meaning it’s what the total decline would amount to if the quarter’s rate were sustained for a full year. A 34% annualized decline works out to a 9.9% decline for the quarter alone.* Big, but at least it’s not a third.
Unless you’re a connoisseur of these things, though, you probably don’t know that we never fully recovered from the 2008–2009 recession. That point is made in the graph below. The line marked “trend” is based on the 2.1% average growth rate from 1970 to 2007, the year just before the Great Recession hit. The “actual” line is, as the name suggests, reported GDP per capita. The Goldman Sachs estimate for the second quarter is marked with the dot. If something like that forecast comes to pass, we will have undone the entire 2009–2019 recover/expansion cycle in a matter of months.
Note how from 1970 to 2007, the actual line bounces around the trend, rising above it in expansions (peaking around 1990 and 2000, for example), and falling below in recessions (like 1975 and 1982). Actual never strayed far from the trend—until taking a sharp tumble in 2008 and 2009, from which it never really recovered. Since 2009, the growth rate has averaged 1.6%. Last year, which Trump touted as the greatest economy ever, it managed to get back to the pre-2008 average of 2.1%, an average that includes two deep recessions (1973–1975 and 1981–1982).
At the end of 2019, actual was 13% below trend. At the end of the 2008–2009 recession it was 9% below trend. Remarkably, despite a decade-long expansion, it fell further below trend in well over half the quarters since the Great Recession ended. The gap is now equal to $10,200 per person—a permanent loss of income, as economists say. That doesn’t translate literally into a loss of $10,000 in personal income; there are lot of other things in GDP, like investment. And gains in personal income have been concentrated in the upper brackets for several decades, so that doesn’t mean the average American is $10,000 poorer than they would be had the economy recovered normally after 2009. It does mean we have a lot less in the way material resources than we should. And it suggested there were serious pathologies underlying a superficial and often strange “prosperity.”
That’s all gone now. Regardless of the exact number, we have almost certainly entered a very sharp downturn, one that could rival or exceed that of the early 1930s, though at a much faster tempo. We could experience in months what took three or four years to unfold after the 1929 stock market crash.
Goldman is expecting a rapid recovery later in the year. I find that hard to believe. A shock like covid-19 isn’t easily recovered from. Even if we find our footing in two or three quarters, we’ll probably see another permanent income loss, unless we undergo some serious structural reforms.
Yes, GDP is a flawed measure of material well-being. It says nothing about what the economy produces, at what human and ecological cost, or how it’s distributed. But GDP is a useful shorthand for the principles around which our society is organized. This analysis helps explain why things have felt so unsatisfying despite cheerful economic headlines for the last five or seven years. And it’s only going to get worse, and probably a lot worse.
*Normally, you can annualize a quarterly rate by just multiplying by 4, or “quarterize” an annual rate by dividing by 4. Such approximations are close enough with the small percentages associated with the ups and downs of US GDP. When the numbers get large, however, that trick doesn’t work because of compounding. The formula to compute the real quarterly rate from the annual one is ((1+-0.34)^(1/4))-1, which yields -9.9. Or, if you want to annualize -9.9, it’s ((1+-9.9)^4)-1, which yields -0.34. For simplicity’s sake I’ve omitted the percent sign.