According to a recent announcement by the
National Bureau of Economic Research, the U.S. economy is in recession — a recession with different characteristics and dynamics than prior recessions, due to the pandemic and public health response, but a recession nonetheless.
Usually, a recession involves “a decline in economic activity that lasts more than a few months,” and it takes six to 18 months to make a determination. In this case, the committee responsible for this assessment considered the depth, duration, and extent of the economic contraction, and determined that “the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”
Will it be briefer? Committee members claim this statement is not a prediction, but there are two pieces of jobs data that can give hope for an improving economic picture, even if the covid-19 unemployment crisis is not yet over.
First,
initial claims for unemployment
have declined for the last four weeks in Maryland and in the counties on the Eastern Shore. (A spike in early May was due to claims submitted under two new federal covid-19 relief programs that expanded eligibility for benefits.)
On the Eastern Shore for the week ending May 30, a total of 2,403 new claims were filed — three times as many as the last pre-pandemic week in mid-March, but only one-third of the 7,500 claims filed for the week ending April 4.
New unemployment claims filed in Maryland for the week ending May 30 totaled 43,095. However, to get some perspective on the total picture, let’s look at the week ending May 16. For that week, 51,108 initial claims were filed, and 255,017
continued claims
were filed, which together give a more comprehensive picture of unemployment in the state.
As bad as the numbers still are, they continue to improve — an indication of an upturn as the governor’s Roadmap to Recovery from the pandemic is put into action. Businesses began reopening as phase 1 was implemented in mid-May and some workers were able to return to work. We can expect to see continued improvement in the unemployment picture as phase 2 kicks in on June 5, with an expanded list of non-essential businesses allowed to operate and needing employees.
Next, there were two surprises about the release of the nationwide
unemployment rate
for May. The first was that the reported rate decreased from 14.7 percent in April to 13.3 percent in May, shocking economists (who had predicted 20 percent) and signaling a quicker recovery than anticipated. Still, The New York Times characterized the drop as
“From Worst to Second Worst”
on their front page for June 6.
The second surprise was that the reported rates are incorrect. A misclassification error (notice of which was hidden in a methodology note) resulted in an understatement of the unemployment rate by 3 percent, making the actual May rate 16.3 percent and the actual April rate about 19.7 percent, using the same methodology. The White House crowed about the 13.3 percent, but has been mum about the corrected calculations. The same error was made in the March reported rate. (The mistake: employed persons absent from work due to coronavirus-related business closures should have been classified as unemployed on temporary layoff.)
Rates and errors aside, the country gained 2.5 million jobs in May, after losing a record 20.7 million jobs in April. According to the U.S. Bureau of Labor Statistics, “In May, employment rose sharply in leisure and hospitality (especially food services and drinking places), construction, education and health services, and retail trade. In contrast, employment in government continued to decline sharply,” signaling that states and local governments are being forced to lay off employees and cut services due to lost revenue from the pandemic; the federal government has not allocated any relief funds to states and local governments.
And, 30 million workers are still collecting unemployment benefits.
The economic picture in the country does show improvement, but the danger at this point is that GOP lawmakers will see the flawed 13.3 percent unemployment rate as an indication that no further federal relief legislation is necessary. But the country is not back to normal. Tens of millions of Americans are still out of work, millions of small businesses are still struggling, some industries are open under severe restrictions or not at all, and state and local governments need help. Many Americans have not yet decided if it’s safe to resume normal activities, which could put a continued damper on improvement in the economy. More help is needed, and sooner rather than later.