Economists conduct top-down analysis of financial and macroeconomic trends, but most of them know little and pay little attention to specific sectors. Now, let’s talk about Friday’s job report that didn’t go as planned: an unemplosskyment rate of 13.3%, as 2.5 million jobs were somehow added, albeit 2 million or more. People applied for unemployment insurance every week. Additionally, median hourly wages have fallen, but only thanks to the resumption of low-wage jobs that had previously been lost.
Of course, there is nothing safe to read. All of this is due to the slow spread of the coronavirus, and there are several reasons why this is not happening. Unemployment may or may not return to a figure by the end of the year, Labor Minister Eugene Scalia predicted Wednesday. However, the reason for the relative optimism begins with a closer look at where the biggest layoffs have occurred and how underlying conditions in the industry are tightening.
An interesting observation is at the heart of the bull case: Since the biggest layoffs occur in low-wage areas, the impact on consumer spending is less than it could be. And if this report, based on a survey conducted nearly three weeks ago, is correct, low-income workers will end much earlier than expected: Economists surveyed by Dow Jones estimate an unemployment rate of 19 percent or more. There are signs that even some of the minor expenses affected by the virtual US store closings will return relatively quickly when we reopen. This could allow much of the consumer shopping industry to recover faster than might be thought.
This is very different from a post-financial recession. At the time, the 9 million net jobs lost were concentrated in well-paying areas like finance, which lost just 262,000 of their 8.6 million jobs in April and 33,000 in May.
To make sense of this argument, understand where the March, April, and May layoffs came from and consider how the industry actually works. According to the Ministry of Labor, 19.6 million net jobs were lost in the two months together.
The health care industry lost 2.1 million jobs in April and another 390,000 in May, the Labor Ministry reported. Of these, 1.1 million are in doctor’s offices and ambulatory surgery centers that were closed or nearly closed during the closures. More than half a million layoffs affected dental offices in April alone, and many more have reached hospitals that house as many coronavirus-free patients as possible. If you need to repair a hernia or replace a knee, you can wait.
When it opened again, there was no reason to think they would stumble. Why? Because the federal government, the most liquid company in history, pays for about 40 percent of health care in the US Significantly, more than half of these workers will be fine; Health insurance companies have little reason to delay treatment when their doctors and dentists reopen. Half of all dentists retired in May.
The next major layoffs in April, 1.4 million, came from manufacturing, including nearly 400,000 in auto and component manufacturing. Vehicle sales are showing signs of life: Sales in May increased 42% compared to April (but still well below May 2019). General Motors expects North American manufacturing to return to pre-Coved levels by the end of June, CEO Mary Barra said at an investor conference on Wednesday.
The bottom line right now is that the economic damage seems much less than just hours ago. And that the economy looks very different from the top sector and not from the downward financial indicators.
George is the CEO of Expat Group Limited, based in Hong Kong.