Expect double-digit unemployment rates for the rest of 2020, economists warn
Federal Reserve Chairman Jerome Powell on Wednesday warned the economic path the nation faces in the weeks and months ahead will be “highly uncertain and subject to significant downside risks.”
Just how uncertain and how risky are what many economists are trying to sort out.
“Economic activity partly depends on what governments decide to shut down, but it also depends on consumers’ fears to go out and spend,” said Gad Levanon, vice president of labor markets at The Conference Board during a webinar Wednesday.
A record 23.1 million workers were unemployed in April, which pushed the U.S. unemployment rate up to 14.7%, its highest since the Great Depression. On May 22, Colorado’s unemployment rate for April will come out, and it should be close to the U.S. rate.
Frank Steemers, an economist with The Conference Board, estimates about 7.5 million U.S. workers were incorrectly described as employed, even though they weren’t working. Include them and the U.S. unemployment rate is probably closer to 20%.
He predicts the unemployment rate will rise again in May, and Levanon adds it will likely stay in double-digit territory throughout 2020.
“Many industries will not fully recover until there is full vaccination or treatments,” Levanon said. “As long as people are afraid of being infected, they will not do a lot of things they used to do.”
Concerts, sports events, movie theaters and amusement parks will be some of the last activities to return to normal, Levanon said. That’s because they come with a high risk of infection and are largely discretionary.
On the plus side, about 80% of those workers out of a job in April expect to be called back. But those workers don’t get to decide. An unknown number will be handed pink slips instead of a paycheck.
The Conference Board estimates that Grand Junction will have the highest unemployment rate among Colorado’s metro areas, in the 16% to 19% range. Front Range metros will likely hover in the 9% to 16% range in the coming months.
That’s unprecedented, but won’t be as bad as the job losses expected in places like Las Vegas; Orlando, Fla.; Lafayette, La., and Midland and Odessa, Texas.
Ali Wolf, chief economist at Meyers Research, said a disturbing trend is how job losses last month went beyond the industries directly harmed by shelter-at-home orders. A large share of job losses in March came in leisure and hospitality, and that sector was the leader again in April.
But other sectors closed the gap, including trade, transportation and utilities; education and health care, and even professional and business services, which shed 2.1 million jobs. April’s loss is 10-fold larger than what the higher-paying, white-collar sector lost during the depths of the Great Recession, she said.
“We will have a double-digit unemployment rate through the end of the year,” Wolf said, echoing the predictions made by Levanon.
Those banking on a much faster recovery, including stock investors, look to the massive federal fiscal stimulus being deployed. Congress is working on adding another $3 trillion to top off what was provided in the Cares Act.
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The federal deficit, which was expected to hit $1 trillion this year before the crisis hit, could run between $6 trillion to $8 trillion, Wolf said.
Additional fiscal support would be “costly,” Powell said on Wednesday, but worth it if it helped avoid long-term economic damage and set the stage for a stronger recovery. But getting assistance out quickly and to those most in need has been a struggle given how quickly the economy shut down to contain the pandemic.
Monthly household incomes dropped by at least $80 billion in April, according to a study Wednesday from The Hamilton Project. But overwhelmed state unemployment systems, including Colorado’s, replaced a little over half the lost income in April. That was due in part to delays in rolling out the additional $600 a week the federal government provided in pandemic unemployment compensation.
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