The Highly Contingent, Deeply Uncertain Case for Economic Optimism

Sushi chef wearing mask in empty restaurant
A sushi chef waits for diners in a Miami restaurant on Monday. Marco Bello/Reuters

If you squint hard enough at the latest jobs report, it starts to look like there’s a levelheaded, somewhat uncertain, but not particularly Trumpy case for optimism about economy.

The early days of the coronavirus crisis led to an avalanche of layoffs and an unemployment rate unseen since the Great Depression. Five months later, though, the labor market looks a bit more like it did after the Great Recession—less 1933 and more 2012. Should events break the right way—if Congress passes another relief bill, if the Trump administration doesn’t botch its alleged vaccine rollout this fall—it’s possible that, by next year, the U.S. will face a manageable climb back to normalcy.

Those are two very big ifs. But given the country’s utter failure on public health so far, it’s nice to think that we still at least have an opportunity to avoid long-lasting economic devastation.

The new jobs numbers were an overall mixed bag that contained some reasons for alarm and underlined the need for action from lawmakers. Hiring slowed once again in August, as many states continued to struggle with COVID flare-ups that have forced them to brake, and in some cases reverse, their reopening plans. Employers added 1.4 million workers to their payrolls, down from 1.7 million in July, and slacking well behind the early summer pace that led the Trump administration to make optimistic predictions about a V-shaped recovery. The numbers would have been even lower if not for census recruiting, which was largely responsible for 251,000 new federal government jobs. A rocket ship, this is not.

Chart showing total job growth
Federal Reserve Bank of St. Louis

The unemployment rate, meanwhile, has gone from catastrophically bad to merely terrible, falling to 8.4 percent in August, similar to in early 2012. (Other, broader measures of joblessness tell a related story, though, depending which metric you pick, the year might look more like 2011 or 2013.) Most of those out of work still say they are on temporary layoffs, thankfully. But the number who have permanently lost their jobs grew from 3.7 million to 4.1 million, which means more of the economy’s wounds could become permanent scars.

Without further government intervention, this situation could easily deteriorate. Private-sector data suggests that small employment has plateaued, now that money from the Paycheck Protection Program is running dry. Without another round of aid, more restaurants, gyms, bars, and music venues could fold for good and lay off their staff permanently, especially in colder northern states where the winter weather could prevent people from drinking and dining outdoors. Unless they get federal relief, state and local governments might be forced to start laying off large numbers of workers due to budget pressures. Consumer spending could also drop off again if Congress doesn’t do something about unemployment insurance. (The Trump administration’s temporary, $300-a-week bonus, which still is barely even rolled out, won’t cut it.)

But there are also reasons to be modestly bullish at the moment. State unemployment rolls continued to shrink through the end of August, after the data for this new jobs report was gathered, which suggests we may be in the middle of another decent month of hiring. Meanwhile, while Congress remains at an impasse for time being, it’s still conceivable lawmakers will eventually pass an economy-stabilizing bill that provides families cash, extends some aid to states, and prevents a calamitous wave of permanent business closures.

If so, and if a vaccine arrives later this year, the job market might look something like it did at the start of Obama’s second term, but with fewer economic headwinds. After the Great Recession, the economy was weighed down by a giant boulder of consumer debt and a depressed housing market (not to mention the poisonous effects of state and local government austerity). Today, housing sales are on fire thanks to low interest rates, consumer debt is actually down from earlier in the year, and families have been saving money they’ll likely want to spend. And again, unlike in 2012 or 2013, many of the jobless are still only on temporary layoffs. As long their employers survive, they can be called back when public health permits.

Even with a vaccine, it will be a while before Americans can resume their regular, pre-COVID lives. But assuming it’s safe and reasonably effective, the economy could return to relative normality fairly fast. We just need Congress to act on aid instead of tumbling into a shutdown,and the Trump administration not to endanger and exacerbate distrust among the public by prematurely rolling out a vaccine for the sake of the election. Basically, we just need to act a bit less like a failed state for the next few months.

Is that so much to ask?

Correction, Sept. 4, 2020: This article originally misstated that the looming government funding deadline might force Congress to reach a deal on further relief spending. But prior to publication, Vice President Mike Pence announced that the White House and Congress had reached a deal to keep the government running with a continuous resolution, avoiding a showdown over stimulus measures.