We’re Officially Living Through a Drunken-Square-Root Recovery

The economy reopened, it reclosed, and now it’s just stumbling along.

A restaurant displays a "Now Hiring" sign amid the coronavirus pandemic, on August 4, 2020 in Arlington, Virginia. (Photo by Olivier DOULIERY / AFP) (Photo by OLIVIER DOULIERY/AFP via Getty Images)
Sorta. Olivier Douliery/Getty Images

U.S. job growth slowed in July, the government reported on Friday, as employers officially added 1.8 million workers to their payrolls, down from 4.8 million in June and 2.7 million May. The tally ever-so-slightly beat out economists’ expectations after a month during which many states forced businesses to shut back down as coronavirus infections spiked, and claims for unemployment insurance remained stubbornly, historically high. But while the figures are a bit stronger than some anticipated, the basic story seems to be that the recovery the White House has been counting on is now slackening off a bit.

The labor market is probably a bit weaker than the official numbers suggest. The unemployment rate fell to 10.2 percent, for instance, but in reality might be a percentage point higher, due to a misclassification issue that’s been dogging the government’s survey for months now. The report showed that schools added 215,000 employees, but that may have been inflated due to a seasonal-adjustment issue. (Basically, districts let their summer staff go earlier than usual this year, due to the virus, leading to fewer layoffs in July than we typically see. That decline in layoffs shows up as an increase in hiring on the report, via the magic of seasonal adjustments.)

But it’s probably best to keep focused on the big picture here: As far as the job market goes, it seems like we’re running out of low-hanging fruit. The initial reopening led to a quick burst of hiring in May and June, as employers quickly brought back workers who could easily do their jobs despite social distancing. Restaurants restaffed for their new limited capacity, outdoor construction work revved up again, and so on. Now, things are slackening a bit. Meanwhile, we’re still down 13 million jobs. If this were a hike, we basically jogged up the first easygoing quarter of the mountain really quickly, but now the climb is getting steeper and we’re slowing down.

This is pretty much in line with what mainstream economists predicted about the coronaconomy—a quick surge of economic activity, as the country came out of its springtime period of hibernation, that would then slow down. A little while back, I called this chart from the the Congressional Budget Office the drunken-square-root-shaped recovery:

Congressional Budget Office

Meanwhile, here’s job growth so far:

Federal Reserve Bank of St. Louis

Looks like the beginning of a drunken square root to me.

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