‘With joblessness where it is, the economy needs more money': Economist

The U.S. economy added back 1.763 million payrolls in July, with the unemployment rate falling to 10.2%. MUFG Chief Financial Economist Chris Rupkey joins Yahoo Finance’s Zack Guzman to discuss.

Video Transcript

ZACK GUZMAN: Mr. Rupkey, when we look into it, some interesting things to highlight there. Notably, it seemed like a little bit of a-- I guess an anomaly when we think about government hiring. That was a pretty large piece of the jobs added when we look at that. Also, the greatest employment growth showed in hospitality, retail, business services. So what was your take on the job number we got today?

CHRIS RUPKEY: Yeah, that was interesting. There's still as many school teachers employed as there were a year ago. So that added a good 300,000 out of that 1.7 million jobs today. But yeah, I mean, I guess we're still coming up short, is the way I would put it. It's a pretty strong recovery in terms of demand. Real GDP could be up 25% in the current quarter. But the first month of the quarter, July, we're still only 40-- we've recovered about 40% of those 22 million jobs lost. A staggering amount, 22 million jobs lost in the first two months of the downturn, March and April. We've come back 9 and 1/4. You know, we're still coming up short. About 12 million short. It's a big number.

ZACK GUZMAN: Yeah, no, I mean that's kind of-- again, you can look at it month by month and say, sure, this might be a positive here because we beat expectations, and so why are stocks not rising, but really, this has-- this conversation needs to come in the context of what we're talking about in terms of what could come out of DC and what could come in that fourth phase of aid here. But to your point, still 13 million fewer jobs than we had in February, before the pandemic hit the US economy here. So how important does that next round of aid become if the economy looks to be faltering here, as we saw a kind of reversal of this recovery, a lot of states went back into lockdown. So how important is it?

CHRIS RUPKEY: Yeah, I mean, we could use another dose. I mean, you know, as economists, usually we're supposed to be agnostic in terms of politics, and any money that is spent in the economy makes it go, from whatever source you have. So you know, those-- that-- those economic impact payments, the $1,200, I thought those were pretty good. Those ran about 275 billion. You don't want to lose-- you don't want to go cold turkey on taking away the $600 a week checks, which are $15 an hour. I know it sounds big, but you've got to keep it in perspective.

Anyway, those $600 checks are worth about 75 billion per month. So over the quarter, what's that, 225 million. You know, these two programs are adding a huge 500 billion. It's probably-- it would be very helpful in terms of the growth profile right now. I think the optics look a little bad. I-- if you're a fiscal conservative, why are we throwing money at the economy when GDP could be rising 25% up this quarter, a record? I understand all those arguments, but realistically, with the joblessness where it is, the economy-- the economy needs more money.

ZACK GUZMAN: Yeah, and I mean, when you think about it on an individual level, when we talk about millions of Americans out of work depending on kind of-- again, no fault of their own here, trying to make ends meet after they've lost jobs, we're talking about trying to restore what was lost in all of this, and obviously it's just the sheer size of it is something that was-- you know, still at this point in the recovery, still seeing unemployment claims above 1 million. And again, we didn't top 700,000 during the worst of the Great Recession here.

But another point to raise when we think about job recovery here and what we've seen was raised by President Obama's former Chair of Council of Economic Advisors, Jason Furman, on Twitter, just kind of pointing out, even if there was a full recall of all those jobs lost that we've seen here, the unemployment rate still would have been about 7%, basically unchanged over the last two months. So what's your take on that? Because we do see some jobs coming back in terms of what a lot of people, even Kudlow still talking about a V-shaped recovery here, but it does still seem like there are scars here in unaffected, at least directly, industries that are still struggling, even beyond just hospitality.

CHRIS RUPKEY: Yeah, I mean, it's interesting. I think one of the problems is the sheer magnitude of the decline in the economy March and April has made everyone a little crazy, from the statisticians down in Washington cranking out these numbers to cranky Wall Street economists. I mean, it's really hard to understand what's going on out there. I mean, just take a look at the unemployment rate is whatever, a little above, what was it, 10.2%, 10.1%?

ZACK GUZMAN: Yep.

CHRIS RUPKEY: The number of people behind that was a little over 16 million. But then that doesn't jive with the number of people receiving unemployment under every single program from the federal and state governments. That's 31 million people. So why are they only counting 16 million? I mean, it's just-- it's just very confusing. I would stick with the number showing 31 million job losses. And it's just massive. Anyway, you're right, we're probably not going to regain all these jobs all that quickly.

ZACK GUZMAN: Yeah, when we talk about how massive it is, I mean, when we're shifting over to what could come out of Washington, it did seem like President Trump was pushing more, just because these stocks have stalled, we haven't gotten a lot of material progress here in the last few days, but has flexed the idea of potentially using executive orders here to go ahead and try and return to those benefits that we've seen on the unemployment front, as well as a payroll tax cut, something that's been floated before. Didn't seem to be much take-up among Senate Republicans, certainly. Not among Democrats, either. But when we think about that as an option, it certainly doesn't seem like one that would be as effective right now, when you consider all the jobless Americans we were just talking about. They wouldn't feel the impact right away.

CHRIS RUPKEY: Yeah, I mean, it would just go to workers. I think that's what they like philosophically, that the aid is going to workers. It's funny, for me, going back over a decade ago in the last recession, we did have a payroll tax cut. They cut the withholding from 6.2% down to 4.2% for a couple years. And that put as much as $2,000 in workers' pockets, if you made the maximum at that time, and it pumped in about 120 billion into the economy.

But you know, as an economist, we looked at that period and said, this did nothing for the economy. That's the irony. I think we've forgotten the lesson. I mean, forget the idea that economists generally think that any temporary tax cut like that does nothing. I think someone got a Nobel Prize for saying that, if it's a temporary income boost, people save it, they don't spend it. Anyway, obviously people are spending something.

To make a long story short, that tax cut that we got, payroll tax cut, did nothing for economic growth in 2011 and 2012. Real consumer spending didn't go up much at all.