There Are Two Recessions, Not One

Justin Fox
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There Are Two Recessions, Not One

(Bloomberg Opinion) -- Of the 21.4 million nonfarm payroll jobs that disappeared in the U.S. from mid-February to mid-April, 17.6 million, or 86%, were in the six lowest-paid (as measured by average weekly wages in February) of the 11 supersectors into which the Bureau of Labor Statistics divides our economy. In May, those supersectors together added 3 million jobs, or well more than the 2.5 million in job gains reported overall on Friday.

In the five highest-paid supersectors, the pandemic-induced job losses were generally less severe, but only two saw job gains in May.

I should note that the nonfarm payrolls data doesn’t actually include government workers’ earnings, but other surveys definitely put them on the higher-wage side. The sector’s job losses have been almost entirely at the state and local level, where governments can’t just borrow to make up for big declines in tax revenue.

I should also note that construction and manufacturing aren’t exactly low-wage industries. Their workers had higher weekly earnings in February than the private-sector average. But they do share with the lower-wage supersectors the characteristic that their workers generally can’t do their jobs from home — and the most important factor determining job security in the early days of Covid-19 seems to have been whether you can work remotely. In general, the people who can do that are white-collar workers with college degrees. Not surprisingly, data from the Census Bureau’s new Household Pulse survey indicates that less-affluent Americans have taken bigger hits to employment income since mid-March than more affluent ones.

The positive side to this, from a macroeconomic point of view, is that people who had lots of money to spend before still have a reasonable amount to spend — as witnessed by the remarkable recovery in mortgage applications reported this week. It also meant that people who had barely enough to get by to begin with suddenly had less, but that making them whole didn’t have to cost all that much. And it does seem like the various congressional efforts to replace the incomes of those who lost their jobs because of the coronavirus have mostly succeeded. Here’s another chart from the Household Pulse survey:

Yes, it’s crazy and alarming that 15.2% of American households making less than $75,000 a year (median household income in 2018 was $63,179) report sometimes or often not having enough to eat, but given the spectacular rise in unemployment the increase in food insecurity over the course of the pandemic doesn’t seem all that big.

Now, millions of low-wage workers are going back to their jobs. But even more millions aren’t, at least not yet. The employment recovery is definitely not looking like a V just yet. A reverse check mark, maybe. Or a backwards square root symbol, if you prefer:

Meanwhile, the picture for a lot of high-wage sectors (and for the higher-wage managerial workers in some low-wage sectors, who were initially less likely to lose their jobs than front-line workers) remains quite murky. March and April saw an unprecedented experiment in shutting down much of the country, which brought declines in economic activity of a scale and speed never before seen. The jobs data for May indicates that the U.S. is already starting to climb out of that, but continuing to see some of the more conventional signs of economic dislocation, such as mass layoffs at corporations and state and local governments that aren’t bringing in enough income to pay the bills. One telling indicator from the household-survey-side of the May employment report: even as the headline unemployment rate went down from 14.7% to 13.3%, the number of permanently unemployed (that is, those not reporting being on a temporary layoff) rose.

In other words, we may have just emerged from the sharpest and shortest recession ever. But without some luck — and probably a lot of continued help for the unemployed, as well as for state and local governments — it’s possible that the early part of the recovery will feel more like a recession for many Americans than the actual recession did.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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