Unsanitized: The Worst Best Economic News in History

Plus, epidemiologists and the protest double standard. This is The COVID-19 Daily Report for June 5, 2020.

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First Response

Economic forecasters were whipsawed by an excellent jobs report today, showing the initial effects of, it seems, the payroll protection provided by the forgivable small business loan program (PPP). Employment rose by 2.5 million in May, according to the Bureau of Labor Statistics (BLS) report, and the topline jobless rate fell from 14.7 percent to 13.3 percent. Essentially all of these job gains came from those in temporary layoffs returning to work. The “growth” industries are all the ones that were hit the worst in the previous report. Ten percent of the job gains were from dental offices. (They must have found their personal protective equipment.)

Conversion of temporary to permanent layoffs, meanwhile, went up.

First things first: these are legitimate numbers (What Paul Krugman tweeted was insane and he’s now apologized). They don’t seem to square with the weekly unemployment claims numbers, which puts those collecting unemployment benefits higher than the unemployment rate for the first time in history. You can get unemployment benefits through the CARES Act’s Pandemic Unemployment Asisstance program even if you work part-time, but that doesn’t explain this discrepancy.

However, in a long note at the bottom of the BLS report, the bureau explains their difficulties with data collection, as well as a quirk in the data: “there was also a large number of workers who were classified as employed but absent from work.” Those were supposed to be marked as on temporary layoff, but they’re listed as employed. If that was corrected, “the overall unemployment rate would have been about 3 percentage points higher than reported.” BLS didn’t change that because they have a strict rule to accept the data as recorded.

Long story short, BLS is telling us that we’re at 16 percent unemployment. And while that’s better than the nearly 20 percent (if you include the misclassified) in the April jobs report, it means we’ve only brought a small sample of those workers back. The level of employment remains sharply reduced from the pre-pandemic months; we’ve maybe brought back a little over 10 percent of the jobs.

Read all of our Unsanitized reports

But the topline numbers don’t say 16 percent unemployment, they say 13 percent. And this report, which in a vacuum looks pretty good, is being taken inside the Trump administration as a declaration of victory, that their policies worked, and as the country reopens no further support will be necessary. Trump scheduled a hastily arranged news conference to tout the comeback. “It takes a lot of the wind out of the sails” of continuing economic relief, White House economic advisor Stephen Moore told the Washington Post’s Jeffrey Stein. “There's no reason to have a major spending bill. The sense of urgent crisis is very greatly dissipated by the report.”

That couldn’t be less true. This bounce-back is meager in real terms and tied to the direct funding of payrolls through the PPP, which only lasts eight weeks. That means PPP funding will cover the next jobs report in June and then will be gone. By July, state and local government cuts will kick in, as they’ve already been doing: the April and May jobs reports showed a combined loss of 1.5 million state and local jobs.

Many states have fashioned their budgets with a “trigger,” expecting federal aid and building that into their budget profile. If this jobs report means that no such help will arrive, the triggers will be breached, and the deeper cuts will ensue.

We haven’t yet seen in this crisis the feedback loop of economic depression, where job loss leads to lower incomes, which leads to less spending and consequently more job loss. That’s entirely because of temporary government action sufficiently filling the hole from layoffs, from one-time stimulus checks and boosted unemployment insurance. But no extension of these efforts would mean that enhanced unemployment would run out in July with nothing in its place. That would seriously contract incomes, precisely at the time that PPP funding runs out. Then you definitely could get that feedback loop going, bolstered by state and local government employee layoffs. And once you’re in that undertow, it’s harder for policymakers to pull out of it.

Maybe the PPP will work as just a bridge to a restored economy. Maybe reopening, not really captured in this report, will continue in big numbers (airline demand has jumped, for example) and we’ll all figure out how to go to restaurants and spend money again. That seems unlikely, since large indoor gatherings like concerts and sporting events seem impossible without a vaccine. There’s a big chunk of the economy that’s off the menu for a while; it’s more likely that reopening will be slow and scattershot, which means that ongoing fiscal support will be required. And that’s if everything goes perfectly on the public health front: a second wave would complicate things even further.

I’m quite fearful that Republican policymakers will use this single report as an excuse to deny continuing relief. After all, very little that they care about is on the line: stocks are on a tear and approaching the levels of last December. Investors are flying out of safe assets and putting risk back on. The corporate and investor class bailout is locked in, and the Fed’s money cannon is intact. They now have a piece of evidence indicating that routing the rescue through Wall Street worked, and it’s time for everyone to go home.

This was always the danger of providing temporary relief, when the economic weirdness around the coronavirus required automatic stabilizers to guide us back to recovery. The “concessions” to the Democrats in exchange for the corporate bailout were underpowered and temporary, and unfortunately we could now pay a real price for that shortsightedness.

Thumbs on the Scale

Earlier this week, I wondered about whether the mass outdoor gatherings of hundreds of thousands of Americans would lead to a spike in coronavirus cases. We won’t know for a couple weeks, and there’s at least some evidence in both directions. But I share some real discomfort with epidemiologists letting their personal views cloud their recommendations about social distancing.

We can’t properly assess the risks to our personal safety if those who call themselves scientists decide what risks are acceptable or not based on the righteousness of the cause. People can figure that out for themselves; what they need is the baseline understanding of what they’re putting themselves into by joining thousands of other strangers in an outdoor protest. If they’re masked will the risks be minimized? If pepper spray or tear gas is used, causing mass coughing and sneezing and widespread droplets, will the masks be insufficient? Those baseline facts are vital.

It’s possible and even reasonable to say that systemic racism is an ongoing health threat and therefore worth risking COVID-19 to fight it. But an epidemiologist shouldn’t be in the position to make that call. This continues a troubling run: the wild swings in modeling expected deaths despite a lack of data, the initial claim that masks don’t work unless you’re a doctor, and now this.

Epidemiological warnings against outdoor gatherings were widespread when there were “reopen the country” rallies. I’d prefer my science come unfiltered. If the evidence is that it’s hard to spread this virus outdoors and people who wear masks should be fine, say that and leave it there. To editorialize risks the integrity of scientific study, in my view.

More on this from Steve Randy Waldmann.

Today I Learned

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