The Long Run of American Job Growth Has Ended -- Update

Date : 26/03/2020 @ 13:08
Source : Dow Jones News

The Long Run of American Job Growth Has Ended -- Update

By Eric Morath, Jon Hilsenrath and Sarah Chaney 

WASHINGTON -- A record 3.28 million workers applied for unemployment benefits last week as the new coronavirus hit the economy, ending a decadelong job expansion.

Initial jobless claims increased by 3 million to 3.28 million in the week ended March 21. The weekly level well exceeded the previous record high of 695,000 set in October 1982.

The record-high level of claims came during a week when many U.S. businesses announced layoffs and several state and local authorities ordered nonessential businesses to close in response to the coronavirus pandemic.

The great American job machine just ground to a halt as a result of the pandemic.

Until March, U.S. employers added jobs for a record 113 straight months, causing payrolls to grow by 22 million. In the process, millions of people -- including low-wage hourly laborers, disabled people, minorities, former inmates and others -- found work. The unemployment rate, which was 3.5% in February, had been at levels not seen since the 1960s. Wages started to accelerate in the last two years after lagging during the early stages of the expansion that followed the 2007-09 recession.

The strong labor market kept the U.S. economy humming for a decade -- straight through a European debt crisis, Japan's tsunami, a Chinese economic slowdown, a domestic manufacturing slump, volatile energy prices and a global trade war.

And then, in a matter of days, it stopped.

Millions of Americans, already fearful the new coronavirus could infect them or their families, now have two new worries: When will the job machine start again? And can they hold out until it does?

"We haven't seen this big of a free fall before," said Keith Hall, former director of the Congressional Budget Office and adviser to President George W. Bush. "Not even during the Depression...It's really like an instant Great Recession."

Mr. Hall said the jobless rate in the coming months could approach the 20% that some economists estimate occurred during the Depression. Northern Trust Chief Economist Carl Tannenbaum said if half the workers in hard-hit industries, such as restaurants, retail and personal services, are laid off the unemployment rate could rise 10 percentage points, to more than 13%. That is well above the post World War II record high of 10.8% at the end of the 1981-82 recession.

Jacqueline Martin, a massage therapist based in Albuquerque, N.M., typically gives up to 16 massages a week, charging at least $50 for a one-hour session. She hasn't worked for much of this month and isn't eligible for unemployment insurance under existing programs.

"Massage is touch, and that's how this is spreading," Ms. Martin said. "I can't Skype my massages."

If the nation can get back to business quickly, restaurants, airlines, hotels, and others might quickly hire back the workers they have let go or furloughed in the shock. With support from government-support programs, including the $2 trillion rescue program being considered in Congress, the jobless rate could theoretically surge and then recede. That is what happened in the 1980s, unlike the long periods of high unemployment in the 1930s and after the 2007-09 financial crisis.

But there are other scenarios. If infection and death rates associated with the coronavirus grow untamed, social distancing -- steps to stem the spread of the virus such as keeping 6 feet apart, avoiding nonessential travel and gatherings of more than 10 people -- could prolong the economic pain. Even if the federal government moves away from its push for social distancing -- as President Trump has suggested he is considering -- states, cities, businesses and individuals could still decide they have no other choice.

The cash crunch now hitting businesses and households also could induce them to pull back further, starting a downward cycle that feeds on itself. All of that could dent business and household confidence, leaving long-lasting economic scars.

Getting back to work thus hangs on how quickly the virus itself is tamed.

"This is happening with dizzying speed, and therein lies my concern," said Mr. Tannenbaum. "The shock and awe from the forthcoming employment numbers could be damaging to the nation's psyche."

Denzel Buie, 25 years old, was laid off from his union construction job Friday when local authorities shut down projects, including the welding and wall building he was doing at Swarthmore College in Pennsylvania. He said it was a serious blow to his family, which includes a 3-year-old daughter. His wife, a secretary, was laid off a week earlier when the allergist's office where she worked suspended operations.

"It's not like I can go get another job," Mr. Buie said. "It was a massive layoff -- the entire construction industry in Philadelphia shut down. All I can do is stay home and pray I don't get sick, because if I go to the hospital, that's another bill."

A week ago, he said he had "a good middle-class job" which paid him $35.50 an hour plus health care and retirement benefits. Now he is struggling to figure out how he'll pay a $300 electric bill and $1,000 in rent for his townhouse. He also lost his health insurance.

Large corporations were initially reluctant to lay off workers aggressively, in part because they expected the virus to pass quickly and didn't want to part with employees. Finding and keeping good workers in what was a tight labor market had been hard.

Now, pressures to fire people are building beyond the industries most directly exposed. General Electric Co.'s jet-engine business said Monday it would lay off about 10% of its U.S. workforce, or about 2,500 employees. Medical offices not tied to treating the virus, including dentists and physical therapists, are shutting and letting workers go. Those providing in-person services, such as barbers, massage therapists and housecleaners, are seeing business evaporate.

The job market isn't uniformly dark, in part because the repercussions of the crisis are spreading unevenly. Walmart Inc., Amazon.com Inc., and CVS Health Corp. are among about a dozen large companies that have said they are seeking to hire nearly 500,000 workers in coming weeks. The companies are managing a surge in demand for food and other household products that have taxed their stores and warehouses.

"We are hiring," says Jeff Stevenson, who runs a wine marketing business that focuses on remote sales called VinoPRO Inc. "We literally had our single largest sales day of the year last Wednesday."

Though those mini-booms are encouraging, economists don't expect them to fully counter the pressures millions of other employers face to lay off workers as sales and cash flows dry up.

Joe Olivo is president of Perfect Communications, a small New Jersey commercial printing company that produces direct mailings for universities and nonprofits and promotional material for retail businesses. In February, business was booming. Revenue was up 28% from a year earlier and he was looking to add five more people to his payroll. Under pressure to retain workers and respond to rising minimum wages in the state, he pushed up pay between 2.5% and 11% for his workforce in 2019.

Then, in a matter of days, orders dropped 70%. He thought he would draw in $10 million in revenue this year; now he sees around $5.8 million, much of it already made. That won't be enough to cover his costs. He has already let five part-time workers go and cut shifts to about 30 hours a week for the other 50. He told his banks he won't be able to make payments this month.

"Right now the lenders are saying, 'We get it,' " he said. But without cash flow, difficult decisions loom about whether to let more people go. "I am working hard not to do that."

For millions of workers, much will depend on whether federal and state unemployment insurance programs can adapt quickly to fill the immense gaps building in household cash flows until the virus recedes.

Among many other measures, Congress is considering expanding coverage to include self-employed people like Ms. Martin. But state unemployment offices have already been inundated with application volumes that they have never seen before.

Mr. Hall, the former CBO director, is among the economists who expect the economy to recover at a slower pace than it contracts. But he pointed to a reason for hope: The labor market has defied expectations in the recent past, drawing a larger share of Americans into the workforce than many expected and reaching low unemployment levels few thought possible.

"We kept getting fooled," he said. "We kept thinking the labor market couldn't keep improving, but it did. Let's hope that the surge in labor-force participation is a permanent one and once we get through this those people will be back to work."

Chip Cutter contributed to this article.

Write to Eric Morath at eric.morath@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com

 

(END) Dow Jones Newswires

March 26, 2020 08:53 ET (12:53 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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