By Mark Schniepp and Ben Wright
May 21, 2020
After rising above 18 percent for the first time in almost a century, the U.S. unemployment rate has decreased for three consecutive weeks. As of May 16, approximately 15 percent of the workforce was unemployed.
In California, the estimated weekly unemployment rate declined to 21.7 percent.
Improvements in the unemployment rate match data showing the number of hours worked at small businesses. Employee hours had declined by as much as 56 percent during the first weeks of the Coronavirus Recession, but have steadily increased and are now only 32 percent below the number of hours worked in February.
Just to be clear, the economic crisis is not over. The unemployment rate is still exceptionally high and there are very plausible scenarios that could cause another contraction. The recovery is virtually guaranteed to be long and arduous.
Little has been done to stem the tide of layoffs, and the problem could get worse as capacity limitations for restaurants, retail stores, and event spaces make it difficult for these businesses to remain profitable, potentially resulting in a wave of business closures and more layoffs. These business closures would be permanent, creating permanent job loss.
There could also be another round of reductions in consumer spending due to fear and/or the increase in precautionary saving until the coast is clear.
Furthermore, we might see an acceleration in layoffs at state and local governments that have been devastated by the lack of sales tax, hotel tax, and other revenue for the last 60 days.
We will discuss these scenarios in future updates, but it is important to be aware that the labor market contraction has reversed for now.
Reprinted by permission from Mark Schniepp, head of the Goleta-based California Economic Forecast, an economic consulting firm that produces commentary and analysis on the U.S. and California economies. The firm specializes in economic forecasts and economic impact studies, and is available to make timely, compelling, informative and entertaining economic presentations to large or small groups.
Re=posted May 21, 2020