Where is America’s Labor Market Going?
The data is increasingly showing that America’s labor market will be headed for a “U” shaped recovery, not the “V” shaped recovery that many were optimistic for. Layoffs remain at levels that far surpass the peak of the Great Recession of 2008/09 by multiples of 2, Continued Unemployment Claims remain stuck at 20 million, and many more people have dropped out of the labor force entirely. The rest of this piece will take a deep dive into these and other labor market indicators as we hope to inform the public of the seriousness of the current economic situation.
Figure 1 shows the number of “firings” as measured by the Initial Unemployment Claims, from FRED. “Hiring” is measured as the net change in Continued Unemployment Claims, with the prior week’s Initial Claims added and Initial Claims from 26 weeks ago subtracted (unemployment claims typically last for up to 26 weeks). For example, if the prior week 1 million people filed Initial Claims, 26 weeks ago 100,000 people filed for Initial Claims, and Continued Unemployment Claims went up by 500,000 million people, it shows the economy hired 400,000 net new employees in that period. As we see in Figure 1, Initial Claims are falling at a fairly steady pace, though they remained around 1.5 million claims in the June 18, 2020 release. Hilgard Analytics sees claims staying above 1 million for the next couple of weeks and in 5–6 weeks only finally dropping to levels seen at the peak of the 2008/09 financial crisis, about 650,000 layoffs per week.
There is positive news to report though as we have seen fairly healthy levels of hiring through the pandemic, especially in e-commerce as retail establishments closed during the shelter in place orders. Many of the jobs being acquired though pay low wages and have rather anemic levels of benefits compared to the jobs lost though. Additionally, as the economy recovers and retail and e-commerce spending returns to normal levels, the risk of a second wave of layoffs persist. Figure 2 highlights where Hilgard Analytics sees the Continued Unemployment Claims going based on the hiring and firing trends laid out in Figure 1. Currently, Continued Unemployment Claims are over 20 million, which is 3x the last peak in 2009, where claims were 6.5 million. Even without a second wave of layoffs as the labor market transforms back to “normal,” we see unemployment staying high for several months.
Figure 3 highlights the biggest risk to an economic recovery, which is employee sentiment. Figure 3 is the Nonfarm Payroll plus U-4 Unemployment, divided by the Working Age Population (15–64). U-4 Unemployment is used because it is more comprehensive in that it includes people who are not looking for a job because they are discouraged. Figure 3 highlights that the labor force has suddenly contracted dramatically, with about a 250 bps drop in the number of people participating in the labor force. This is over 8 million people now saying they are not participating in the labor market. While this should help to push wages higher in the recovery period, it is also a massive number of consumers who may look to reduce their spending and tremendous level of talent that employers will not be able to access.
About the Author:
David Rosen, who was recently named a Partner and Director of Real Estate Research at Hilgard Analytics, has a proven track record of success in the real estate and automotive industries. He received his undergraduate degree in business administration from Cal State Fullerton and is a newly minted MBA graduate from the UCLA Anderson School of Business, with concentrations in real estate and finance.
