By Mark Schniepp and Ben Wright
April 24, 2020
The nation’s unemployment rate is now at stratospheric levels, but where it goes from here is uncertain.
The first round of Paycheck Protection Program Loans has been distributed and the dollar amount is significant. If firms elect to have these loans ultimately forgiven, effectively converting them into grants that won’t require payback, they must maintain their pre-recession staffing levels near pre-recession salaries.
Some firms will use PPP funds to re-hire workers that had been laid off. Other companies will use them to prevent layoffs in the future.
Some organizations have undoubtedly applied for loans when they had no intention of laying anyone off at all. And other firms will allocate the funding to finance both payrolls and other perhaps larger expenses such as rent, equipment, materials, and utilities.
The details of these decisions will have large implications for the job market.
A high share of funding has gone to sectors hit hardest by the shutdowns, such as accommodation and food, retail, and construction, where layoffs have been substantial.
But other sectors have received loans to fund more jobs than they have actually lost to date, indicating that the loans will be used to maintain existing payrolls. The most prominent are healthcare and professional, scientific, and technical firms.
The $349 billion comprising the first round of PPP loans could fund the salaries of 39.4 million jobs nationwide, exceeding the 38.2 million layoffs that have been recorded to date.
In California, the circumstances are strikingly different. There have been an estimated 4.9 million layoffs in March and April, but PPP loans issued to California firms will support only 2.9 million jobs.
The largest deficit is in the expansive accommodation and food service industry. Of the 1.7 million jobs lost, a maximum of 580,000 could be restored by the first round of PPP activity – a shortfall of 1.1 million jobs. Prominent shortfalls can also be observed in retail (416,000 jobs), entertainment and recreation (312,000 jobs), and manufacturing (122,000 jobs).
Loans to the construction industry, on the other hand, could prevent more than 210,000 layoffs in addition to the jobs already lost. Loans to healthcare organizations indicate surplus funding for 199,000 jobs.
How will the first round of funding affect the labor market? It’s too early to tell, but there are ways to track the results in real time.
Initial unemployment claims are a barometer of layoffs, so a sharp drop in claims would imply that PPP loans were preventing layoffs that would have otherwise occurred.
Continuing unemployment claims are closely related to the number of people who have been unemployed for two weeks or more, so a decline in continuing claims would indicate that previously laid off workers were being re-hired.
All of this information is included in our weekly unemployment calculations, and there is a strong likelihood that the unemployment rate will be falling within the next few weeks. Congress and President Trump just authorized $310 billion for another round of PPP funding, which could fund millions of additional jobs, so stay tuned for updates.
Mark Schniepp is 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.
Posted April 24, 2020.