The loss of jobs is the main challenge of any economic downturn, and the current recession is no exception. Even once businesses reopen, the recovery (and people) will struggle if workers aren’t called back to factories and stores. Without steady paychecks, consumers will be hesitant or unable to spend, which further harms business profitability and hiring, causing a downward spiral.
Keep Your Eye on Job Trends
Thus, for long-term investors, the job market provides a view into the economic environment in which businesses are operating. It’s likely that these trends are more important than watching new coronavirus headlines on a daily basis. At the moment, there’s good news and bad news.
The Good News about Job Trends
Many jobs have returned in the past few months, as parts of the country have eased COVID-19 restrictions. Since May, 9.3 million jobs have been added and the number of people seeking new jobless claims on a weekly basis has fallen to 1.2 million today. Additionally, there are still almost 6 million job openings despite the pandemic.
Chart: Despite the pandemic, there are still almost 6 million job openings across the country. However, it will take time for the right people to be matched with the right jobs.
Fortunately, all of these data suggest not only that an economic recovery is possible, but that it has been occurring since May. Depending on how the public health crisis unfolds, it’s possible that April was the low point for the economy. The anticipation of this was one reason that the stock market began to rebound in late March.
The Not-So-Good News About Job Trends
The bad news is that we are still a long way from a full recovery and the pace appears to have decelerated somewhat. Despite recent job gains, there are still 12.9 million fewer positions than in February – a staggering number. And although there are fewer individuals seeking unemployment insurance each week, the total number receiving benefits is still over 16 million Americans.
Chart: Many jobs have returned and some workers have been recalled to their jobs, but it will take years to return to pre-crisis levels.
Unemployment Improving But Still Higher than 2008 Crisis
The unemployment rate has fallen significantly, from 14.7% to 10.2%. However, this is still higher than the peak of 10% after the 2008 financial crisis. During that period, it took nearly 8 years for the unemployment rate to reach pre-recession levels.
The silver lining – if we can call it that – is that many jobs may return more quickly this time. This is because the coronavirus was a shock from outside the economy and not the result of a collapsed financial system or asset bubble, per se. Of course, this doesn’t mean that all parts of the economy will recover similarly, and there will certainly be industries that are changed forever.
But this is where it’s important to distinguish between making decisions in our everyday lives and for our portfolios. Even if parts of the country are still shut down and many aspects of our lives are still disrupted, financial markets will continue to look forward. Ultimately, it’s most likely that the economy will slowly continue to re-open and advance – even if there are outbreaks at a local level. This is true whether or not there is a vaccine, although that would certainly help.