US Economy Still On "Life Support"
In July, employment levels continued to recover as parts of the economy re-opened following the unprecedented collapse in economic activity and jobs in the spring months. Yet, as strong as the July gains appear on the surface only 40% of the job loss has been recovered.
Record amounts of fiscal and monetary stimulus have been injected in the economy and labor markets to limit the damage and build a bridge to recovery. Ending that “support” bridge now will surely trigger a stall if not reversal of the gains in the labor markets in the coming months.
Payroll employment increased by 1.76 million in July, while the household survey showed a gain of 1.35 million. Over the past three months, payroll employment has increased by 9.3 million, while household employment jumped by 10.1 million. Both measures of employment have recovered approximately 40% of the record job losses that occurred in March and April.
The civilian unemployment rate fell roughly one percentage point to 10.2% in July. But the Bureau of Labor Statistics (BLS) still is un-reporting the number of workers that are idle due to the pandemic. BLS stated that if the number of workers classified absent from work from the pandemic as unemployed instead of employed the jobless rate figure for July would have been one percentage point higher (11.2% vs. 10.2). Other than the past three months, a jobless rate of 11.2% would be the highest of the post-war period.
It will be interesting to see how the latest employment figures impact the negotiations between Congress and the White House. The federal government injected between $2 and $3 trillion in the economy in Q2, while also letting a number of people delay rent and mortgage payments.
Ending that federal support, or even reducing it in a big way now, would do more damage to the real economy than what the Federal Reserve did to finance (equity markets) in 2018 when it started to raise official rates.