How Has COVID-19 Impacted the US Labor Market?

According to the most recent jobless claims report, more than 44-million individuals have filed for first-time unemployment insurance since March. With approximately 157-million workers in the US, the figures show that the unemployment rate could be as high as 25%. While the US Labor Department reported that the unemployment rate declined to 13.3% from more than 14% in April, it is unclear whether this report accurately reflects the unemployment situation in the United States.

The Most Recent Jobless Claims

The spread of COVID-19 generated a response that was devastating to the US jobs market. In most states across the country, non-essential businesses were ordered to shut. These businesses had no choice but to lay off their work-force, and hope that the restrictions would be lifted in time to save their businesses. To assist small businesses the congress and the US President signed into law a paycheck protection package that would help businesses survive during unprecedented times. The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities according to the US Treasury Department. The benefits of this program are that the loan, that is provided to small businesses, will be converted into a grant if the business can show that the funds were used to pay employees that were on the payroll ahead of the pandemic.

Unemployment Continues to Decelerate

Employees at both large and small businesses have felt the impact of the forced layoffs demanded by Federal, state, and local governments. The best way to track the labor situation is to evaluate the weekly jobless claims numbers. The Labor Department releases initial jobless claims every week which is the most accurate reflection of the job picture in the United States. The most recent June 2020 report showed about 1.5 million Americans filed first-time applications for unemployment insurance. That pushes the tally of those who have made initial claims to a staggering 44.1 million since March of 2020. There is a silver lining reflected in these numbers. The 1.5-million figure is down from 1.9 million the prior week. Additionally, the initial jobless claims figure has declined for 10 straight weeks since peaking at 6.9 million at the end of March. The recent figure is also the lowest since the pandemic began.

The deceleration in the trend is good news and should continue to decline into the summer. The unfortunate news is that the 1.5-million figures are still a very high number, one that has not been seen since the great recession.

The Issue With the Recent Jobs Report

There does seem to be an issue with the current job numbers that have drawn the attention of economists. The issue stems from the question of how the unemployment rate can be 13.3% when more than 25% of the eligible workers have filed for initial jobless claims. In the latest report, the Labor Department reported an anomaly which there are attempting to rectify. The issue is the Household Survey issued by the Labor Department asks whether someone has been laid off. If you have been furloughed by your employer, it can take a specific period before your furlough becomes a permanent layoff. When you are furloughed, your employer will generally still pay for your health insurance but you will not receive a paycheck. You are also eligible to receive unemployment insurance. Before you are officially laid off, your employer needs to give you notice.

The issue is that millions of workers have been furloughed, and while some will potentially get their jobs back, millions will not. The jobs figures appear to discount those who are taking employment insurance but believe their layoff is temporary. The Labor Department said that if the anomaly was counted, the number of unemployed could be 4-5% higher than the current levels.

While the number of jobs created increased by 2.5-million in the latest report, this figure appears to be people getting rehired. More people were rehired than fired which also did not account for the people that were furloughed. Eventually, the Labor Department will fix this anomaly and the number that is reported could be staggering.

The Bottom Line

The upshot is that COVID has created a devastating jobs picture in the US that will take a long time to recover. Despite the issues in the jobs market, the US stock market has rebounded from the lows experienced in March. The robust stimulus added by the US Federal Reserve and the fiscal stimulus provided by the US congress has helped put a floor under US stocks.