Does the May Jobs Report Indicate the Recovery Has Begun?
The United States currently faces a triad of crises unlike anything that it has ever seen before. A global pandemic has killed over 100,000 American citizens, an unfathomable amount. At the same time, we face the worst economic crisis that this nation has seen since the Great Depression. Millions of Americans find themselves unemployed and unsure of what their future holds. Moreover, racial tensions have inflamed to their highest level since 1968 with mass demonstrations taking place across the United States. All in an election year.
Here at Synergy Works Group, we understand that this is an extremely challenging time to be a small business owner. The goal of this piece is to provide a short summary of what we believe economic conditions in the United States will look like through the next few months. We hope that this assessment of the US economy will assist your business in making good business decisions with the best available information we have at this time.
Currently, most of the United States is in the process of reopening the economy. This willlikely lead to a short-term resurgence of jobs as many lower wage occupations were the hardest hit through this crisis. Restaurants and bars should be some of the first businesses that will see positive consumer spending increases shortly after the lockdown. There is evidence that this is already happening as per the May jobs report.
On Friday, June 5th, the shocking May jobs report released. While typically, forecasts of economic growth are quite accurate, in May, 2.5 million jobs were added to the economy when studies had shown that up to seven million jobs could be lost. One explanation for the discrepancy was the effect of the trillions of dollars of PPP (Paycheck Protection Program) being pumped into the economy during this time. It is likely that most of the good economic news came because so much stimulus kept the economy from faltering further.
There are several factors which make it highly difficult to forecast the state of the economy. We do not know how much the mass protests will accelerate the spread of COVID. Wealso do not know how long social distancing will remain in place. With reasonable confidence, it seems that the worst is likely over at least in terms of unemployment. If there are future lockdowns, those will be targeted to specific counties or cities as opposed to nationwide. For thisreason, it is likely that whatever temporary reopening measures will continue to improve, barringa spike in Covid cases.
At the same time this does not mean that the economy will recover to the level it was at before the pandemic. A study according to the University of Chicago indicated that almost 40% of layoffs due to Covid could be permanent. FEMA has found that after other disasters, 40% of small businesses never reopen.
The most important factor to watch regarding the economic factors are whether Congress passes another stimulus bill, and whether the expanded unemployment benefits continue. They are currently set to expire on July 31st. If one or both things happen, the economy will recover faster than if they do not. However, even if both of those things happen, it is still very likely that we will continue to see recession level unemployment on election day. Chances are that there will be a rapid recovery in the short term as service jobs like restaurants and bars. At the same time, other industries such as the airlines and hotel chains will take longer to recover. The economic recovery may be swift at first, but it is highly unlikely that we will reach the levels we were at in February at any point in 2020. Consumer demand will also improve but is also unlikely to reach February 2020 levels anytime soon.