Friday, September 4, 2020

August Unemployment Down 6.3 Points in Four Months: Comparing the 2020 Jobs Recovery to the 2008 Recession

Click here to read the original Cautious Optimism Facebook post with comments

Unemployment rate: 2008-2020

4 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff analyzes the stark contrast between the 2020 jobs recovery and that of the Obama years… even if the media won’t.

Today the Bureau of Labor Services announced that 1.4 million jobs were created in August.

But more importantly, the August unemployment rate fell to 8.4%, far below the consensus forecast of 9.8%.

Four months ago, the unemployment rate peaked at 14.7%, accompanied by endless media headlines comparing the Coronavirus recession to the Great Depression.

The Economics Correspondent, himself author of twenty CO articles on the Great Depression, thought from the beginning that such comparisons were uninformed and ridiculous.

During the Great Depression, unemployment not only peaked at 25.9% (1933) but it remained over 10% for more than a decade (October 1930 - February 1941 to be exact).

In 2020 unemployment hovered in the double-digits just four months before making its exit.

That’s 124 months versus four. “Not comparable” would be an understatement.

But what’s even more striking about the August unemployment rate is that it’s already down 6.3 percentage points from the peak in just four months.

Let’s contrast this to the jobless picture after the 2008 financial crisis.

Under Barack Obama the unemployment rate peaked in October of 2009 at 10.2% and reached full employment, loosely defined as 5% joblessness, in September of 2015 nearly six years later.

Even as Obama was on his way out in January of 2017 unemployment was at 4.8% or down 5.4 percentage points, and it took a Trump administration to get the rate down to 3.8% (finally down 6.3 points) in May of 2018 or 8 years and 8 months later.

See chart for a dramatic visual representation:

Granted, once you’re down to full employment it’s more difficult to reduce the jobless rate as quickly, but the comparison is still worth repeating: In 2020 it’s taken four months for unemployment to fall 6.3 points from the peak. In 2009 it took 104 months. So the job recovery in the Trump era is so far moving 26 times faster than that of the Obama era.

The press was rapid-fire, trigger-happy quick to compare joblessness under Trump to the Great Depression just a few months ago, but today it’s dead silent when it comes to comparing job recoveries under Trump and Obama... or the Great Depression, or any other recovery for that matter.

So why was unemployment so much slower to fall during the Obama years? The Economics Correspondent sees two primary reasons: one beyond Obama’s control, and the other quite Obama-specific.

First, what Obama had little control over was the nature of the recession he was handed. After the 2008 financial crisis the economy was highly imbalanced and had to undergo fundamental readjustments. There was a huge bad mortgage overhang, many banks were reeling from massive deterioration in their assets and loan portfolios, and an oversized portion of the economy that had been misallocated to real estate and finance had to be diverted away to more rational lines of business.

Those kinds of adjustments take time. Not necessarily six years but they don’t fix themselves overnight either.

By contrast the economy was doing extremely well in early 2020 when it was suddenly hit by an exogenous shock. The introduction and spread of Covid-19 into the USA disrupted the behavior of consumers and businesses—even on a voluntary basis. People stopped flying and avoided restaurants, bars, movie theaters, concerts, cruise ships, public transportation, and countless other venues. Spectator sports closed their doors to fans. Many businesses told workers not to come to the office and laid off those who couldn’t work remotely.

This isolation problem was further compounded by government lockdowns that prohibited even those consumers, businesses, and workers who wanted to participate in the economy from doing so.

But there was no major fundamental problem with the economy itself.

As soon as lockdowns were loosened across the country, economic activity partially resumed and moved closer to its pre-pandemic levels. Thus unemployment has fallen rapidly from the April peak. However it will likely take a full resolution of the virus problem before full employment is possible again, and monthly job gains will probably slow from the torrent pace of the summer.

One could argue the economy was already in great shape because of Trumponomics policies and there would be some truth to that. But even a President Hillary Clinton would likely be looking at a healthier economy in early 2020 than Barack Obama was faced with in early 2009.

Second, the policy responses by the Trump and Obama administrations couldn’t be more different.

President Obama took a fragile economy barely starting to recover and hindered it further with thousands of new regulations, raised taxes (in 2012), and launched a nonstop rhetorical war on the employers who he also expected to reduce unemployment. 

Obamacare itself was a huge job killer, as businesses 50 fulltime employees or over were required to provide health insurance and thus small businesses refused to grow to over 50 workers or even laid off enough to get below 50. And large corporations cut hours to convert millions of workers from full to part time.

It’s no coincidence that the job recovery to full employment—when measured from the date of a banking crisis to when 5% unemployment was reached—was the second longest in American history at exactly seven years, only after the Great Depression itself.

Now *there* was a valid Great Depression comparison, but the press was silent on that one too.

President Trump’s response to his recession has been fairly hands off and if anything gone in the opposite direction. There have been tax refunds instead of tax hikes, and he has signed emergency deregulation instead of adding regulations, although most of the rules suspensions have been designed to speed up and facilitate fighting the virus.

Both Presidents signed stimulus legislation. While the Economics Correspondent is not generally a fan of stimulus spending, there have been key differences there as well.

The Obama stimulus focused heavily on channeling government deficit spending towards green energy companies—nearly all of which failed—and overpriced/wasteful public works programs, many of them politically motivated. 

The Trump stimulus has been focused more on government deficit financing of "bridge support" to a post-Covid recovery for existing businesses and industries, not ones he’d like to create himself.

Both stimulus plans expanded unemployment benefits. While the Correspondent doesn’t think it was a good idea to offer low-skilled workers additional payments that were more lucrative than working, the Obama stimulus extended unemployment checks for up to 99 weeks which incentivized millions to put off looking for work longer. And of course the current recession only began about 20 weeks ago so there hasn’t even been a reason to offer 99 weeks of benefits.

So the current job recovery is to date the fastest in American history, the press has suddenly gone silent with amnesia, and the contrast between 2020’s job market and that of 2009-2018 couldn’t be greater. The fast-track to reemployment under Trump is due in part to the unique and shorter-term nature of the recession, but it’s also an indictment of the job-killing policies of the Obama administration and the generally job-friendly policies under Donald Trump.

And don’t expect to hear that from the press, especially two months before the election.

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