Supplementary Economic Indicators Offer Insight During COVID

In economics, it can often seem that nothing happens for years at a time, only for years’ worth of change to happen all at once. The economy, in other words, can seem stable – or even boring – until suddenly it is not. In Idaho, for example, the changes in total nonfarm employment in April, May and June 2020 exceeded (in absolute terms) all the changes that occurred from 2015 to the end of 2019. Owing to the pandemic shock of COVID-19, three months saw more volatility in Idaho’s labor market than the preceding four years.

When economic events gain velocity, especially in the face of a serious recession, a variety of labor market indicators take on new importance, especially those updated monthly or even weekly, rather than quarterly or annually. Several labor market indicators can add to a real time understanding of economic conditions as a supplement to the Department of Labor’s headline statistics like unemployment rates and nonfarm employment numbers.

The Pulse Survey

A core program at the heart of America’s labor market data is the Current Population Survey (CPS), conducted by the Bureau of Labor Statistics. The CPS is a robust survey of households with a large sample that forms the basis for monthly employment estimates. At the beginning of the COVID pandemic shock, the U.S. Census Bureau began conducting a somewhat similar survey called the Pulse Survey. This survey has a smaller sample size than the CPS – thus a larger margin of error – but is conducted and published weekly. This useful, rapid turnaround supplement to the baseline of the CPS can help analysts keep their finger on the pulse of the labor market in the weeks between the monthly releases of CPS data.

Due to differences in survey structure, such as how employment is defined, how the questions about employment status are phrased and the natural variance in survey responses, the estimated employment totals in the Pulse Survey are highly unlikely to ever perfectly match the estimates of the CPS. This is intentional and does not reflect mistakes on the part of either survey. The Pulse numbers do, however, offer an important insight into the direction the labor market is moving.

Total Unemployment Claimants

One critical response to the economic shock of COVID-19 has been an expanded system of unemployment insurance (UI) benefits, both traditional state unemployment insurance and new federal CARES Act programs, like Pandemic Unemployment Assistance (PUA). These expanded benefits have proven critical for buoying the economy as they allowed total household income to remain stable through the spring months despite a sharp contraction in hours worked and wages earned.

However, these expanded benefits and new programs have led to a large population relying on unemployment benefits to meet expenses. Many of these individuals do not fall under the traditional definition of “unemployment” and normally are not part of the reported unemployment claim counts. For example, the PUA provides unemployment benefits to self-employed and gig workers, who typically are not eligible for benefits.

The U.S. Department of Labor publishes counts of people claiming benefits from the full range of unemployment insurance programs – a figure which includes new federal programs created specifically to respond to COVID, exceeding the claims counts that are reported under normal economic conditions. Adding together claimants from all programs provides an “all-in” claimant count, which is a measure of the total number of individuals who currently are economically affected in some capacity. This number, of course, does not match headline unemployment rate and nonfarm jobs numbers, but this is because each is measuring different things, and the all-in count is a more expansive metric.

Despite signs of economic recovery in recent months, the all-in claimant count remains very elevated, indicating that a significant number of households are still economically affected by the ongoing crisis.

Permanent Job Losses

One important feature of the labor market indicators derived from the Current Population Survey is a distinction between permanent and temporary job losses. Within the larger category of unemployed persons, CPS data makes a distinction between those on temporary layoff or who experience permanent job losses.

This distinction has taken on new importance amidst the ongoing economic fallout from the COVID pandemic shock. When the economy was idled by the pandemic, the majority of idled workers were coded as temporary job losses. In April, for example, the number of workers on temporary layoff outnumbered permanent job losses by more than 9 to 1.

Since April, however, it has become clear temporary closures are metastasizing into permanent economic damage. Temporary layoffs have decreased, but the number of permanent losses has risen as businesses close or permanently downsize. It is important to track the number of permanent job losses, because the increase may not result in rising unemployment, which can allow the economic damage to go unnoticed.

Consider, for example, a hypothetical economy with 10 unemployed people – seven are on temporary layoff and three lost jobs permanently. In the next month, the number of unemployed drops to eight – two temporary laid off workers are called back to work, but three more are permanently laid off instead, and recoded as permanent job losses. There are now 6 permanent job losses – twice as many as in the previous month – even though the total number of unemployed has decreased.

This example is somewhat similar to the situation faced by the U.S. economy – employment is beginning to recover, but at the same time many temporarily laid-off workers have lost permanent jobs. At this point, the number of permanent job losses exceeds the number at the same point in the recession of 2007-2009, which means the labor market currently is ahead of the pace – in a negative way – set by the most significant recession in decades.

The economic situation remains very fluid. The shock to the economy from the COVID pandemic is without precedent, and the road to full recovery is long and fraught with uncertainty. The full scale of the economic damage is unknown, as is the scale and nature of future federal policy response and the way individual behavior will change in response to the experience. Consumption patterns are likely to change in ways that cannot be fully predicted, and permanent work-from-home arrangements will change both how and where people live and work. This is to say nothing of the ongoing challenge faced by COVID-19 – a biological problem against which economists and their analysis tools are largely powerless.

In such an uncertain and unprecedented economic situation, analysts will do well to consider a broad range of supplementary economic indicators. Traditional metrics like the unemployment rate and nonfarm employment are in flux at the moment, owing to the massive scale of the changes happening weekly or monthly. Fortunately, the U.S. has a variety of useful diagnostic tools, only a few of which are described here, that can help in understanding the developing situation., regional economist
Idaho Department of Labor
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