Jay Powell, the chairman of the Federal Reserve, has been so disturbed by the shattering of America’s once-healthy jobs market that he struggled to describe it as he testified before the Senate banking committee this week.
“Since the pandemic arrived in force just two months ago, more than 20m people have lost their jobs, reversing nearly 10 years of job gains,” Mr Powell said, adding: “This precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future”.
The data on the economic toll of the coronavirus outbreak has indeed been devastating — and a grim reminder comes every Thursday morning in the US labour department’s weekly report on new applications for unemployment benefits.
It has shown millions after millions of filings for federal help — and another 2.4m are expected on Thursday, according to economists’ forecasts. Meanwhile, the unemployment rate rose to 14.7 per cent in April, and is expected to increase even more once data for May are released.
Beyond the headline figures, much can be gleaned about America’s newly jobless as more data has trickled in: they are mostly low-income service workers from minority communities, and they are struggling to get the economic relief that was intended for them.
As fears grow that temporary dismissals could become permanent, so is concern that these workers will never fully recover financially.
The damage has been extensive . . .
Out of the 21.4m jobs that were lost during April across the US economy, by far the biggest chunk, roughly 8.2m people, has come from the leisure and hospitality sector — including restaurants and hotels that have suffered dramatic declines in customers.
Retailing also took a huge hit, with about 2.2m job cuts over the course of the two months, as American consumers could not access stores to purchase items that did not involve food, medicine or other essential items.
But the pain was even more widespread: professional and business services, such as temporary office workers, also shed 2.2m positions, and healthcare experienced a similar decline, as people shied away from routine medical and dental appointments.
Few sectors have been spared: manufacturing, construction and government — on the back of state and local authority employee lay-offs — each also lost more than 1m jobs since March.
. . . and the burden has fallen on the most vulnerable
Almost half of all US adults live in a household that has lost income due to the pandemic, according to data released this week by the US Census Bureau. That pain has been heavily concentrated among less affluent Americans and minorities.
According to a Fed survey conducted in early April, 39 per cent of people in households earning less than $40,000 a year who had a job in February lost it in the early stages of the US virus outbreak. That figure compares with 19 per cent for households with incomes ranging between $40,000 and $100,000, and just 13 per cent for households earning more than $100,000.
Hispanics have experienced the biggest hit among ethnic groups, with joblessness soaring from 4.4 per cent in February to 18. 9 per cent in April, while the unemployment rate among African-Americans increased from 5.8 per cent to 16.7 per cent last month.
The safety net is fragile . . .
The White House and Congress in March agreed on a $2.2tn stimulus package that was partly designed to help struggling families cope with lost income due to the pandemic.
One lifeline came through direct payments from the US government of $1,200 for each adult earning up to $75,000. Another came in the disbursement of an extra $600 in federal unemployment benefits a week for every jobless American, in addition to an average payment of $358 a week they already receive through their states.
The benefits were also extended to “gig economy” workers such as Uber drivers. Such aid can be crucial to sustaining families through this period, although there are two key caveats.
Frustrations have been mounting over delays in the payout of jobless benefits, with many states failing to keep pace with demand. And expanded unemployment benefits will only be in place through to the end of July. Republicans in Congress, as well as the White House, are wary of extending them for as long as Democrats would like, for fear that they will disincentivise people from returning to work.
. . . and any rebound could be weak
When the Fed surveyed Americans in early April who recently lost their jobs due to the pandemic, the vast majority said their employer had told them to expect to return.
The catch was that most businesses did not indicate any fixed date for when that might happen, and there is growing concern that job cuts which were expected to be temporary will become permanent.
Even as many US states start to ease stay-at-home orders, businesses will operate at limited capacity due to weak demand and lingering social-distancing requirements. If the impact of the virus produces long-term changes in consumption or investment patterns, many of the pre-crisis jobs could be obsolete even when growth returns.
Meanwhile, Mr Powell recently warned that long-term unemployment could “damage or end workers’ careers as their skills lose value and professional networks dry up” — a grim scenario that is most often associated with stagnant labour markets in southern Europe.