Unemployment Report: No Need to Be Terrified
Last Friday, the Bureau of Labor Statistics (BLS) released its latest jobs report. First glance at this report can strike fear in the hearts of Americans. It revealed that the economic shutdown made necessary by COVID-19 caused the unemployment rate to jump to 14.7%. Many anticipate that next month the percentage could be even higher. COVID-19 has removed any gains we have made in the past few years in less than two months.
If you listen to what people are saying and read many of the articles written, people are saying that this is akin to the Great Depression. Many of those articles are calling for total Armageddon and the destruction of our economy and way of life. Some experts are stepping up to refute those claims.
In a Wall Street Journal (WSJ) article this past weekend, Josh Zumbrun, a national economics correspondent for the Journal explained:
“News stories often describe the coronavirus-induced global economic downturn as the worst since the Great Depression…the comparison does more to terrify than clarify.”
Zumbrun goes on to explain:
“From 1929 to 1933, the economy shrank for 43 consecutive months, according to contemporaneous estimates. Unemployment climbed to nearly 25% before slowly beginning its descent, but it remained above 10% for an entire decade…This time, many economists believe a rebound could begin this year or early next year.”
Here is a graph comparing current unemployment numbers (actual and projected) to those during the Great Depression: Clearly, the two unemployment situations do not compare.
What makes this time so different?
Our present-day economy did not collapse because of structural damage such as the stock market crash of 1929, but instead a planned shutdown to help mitigate the virus and save many lives. Once the virus is contained, the economy will immediately begin to recover. The economy might not bounce back right away but its roots are strong and it will bounce back, but there might be a short lag time which will cause short term pain for many Americans. This is nothing like what happened in the 1930s. In the same WSJ article mentioned above, former Federal Reserve Chairman Ben Bernanke, who has done extensive research on the depression in the 1930s, explained:
“The breakdown of the financial system was a major reason for both the Great Depression and the 2007-09 recession.” He went on to say that today – “the banks are stronger and much better capitalized.”
What about the families and small businesses that are suffering right now?
The nation’s collective heart goes out to all. The BLS report, however, showed that ninety percent of the job losses are temporary. Don’t forget that the business that furloughed many employees did so to protect the Nation, and at the time, most were not in a financial crisis, and many companies were doing very well. Besides, many businesses and employees are getting help surviving this pause in their employment status. During the Great Depression, there were no government-sponsored unemployment insurance or large government subsidies as there are this time. This makes a difference in how things are being handled, our Government has learned from its past mistakes and will do everything in its power to prevent a repeat of the 1930s.
Today, many families are receiving unemployment benefits and an additional $600 a week. The stimulus package is helping many companies weather the storm. Is there still pain? Of course. The assistance, however, is providing much relief until most can go back to work.
We cannot look at the disruption in our economy through the lens of fear, but through a lens of hope, because we as Americans had to make sacrifices and did what had to be done in order to get past this current health crisis. Americans have a reputation of when we get knocked down, we get right back up and come back even stronger than before. COVID-19 sucker-punched many Americans in their pocketbook and put a pause on the economy. The country will recover once the pandemic ends. Comparisons to any other downturn make little sense. Bernanke put it best:
“I don’t find comparing the current downturn with the Great Depression to be very helpful. The expected duration is much less, and the causes are very different.”