Are we recovering?
"Optimists point to the rapid decline in the unemployment rate after the first wave of the pandemic—from nearly 15% in April to 6.7% in November— as a reason for a speedy recovery. Pessimists' go-to statistic is the high and rising rate of the long-term unemployed, those who have been out of work for more than six months. It has risen from 0.7% of the labour force in February to 2.5% today." -From The Economist - Jan 2, 2021 (America's Jobs Market. Speed Limits)
The article recounts the fact that many people who are long-term unemployed have indicated that they are only temporarily laid off, while history and shows that over time, many of these jobs may not come back.
Many people have dropped off the rolls altogether and are no longer looking for work. According to Jason Furman and Wilson Powell III of Harvard University, the real unemployment rate is 8.5%.
Within the sectors of knowledge work, there has been a dramatic overnight shift to large numbers of jobs being "from anywhere". Millennials, not wanting to miss out, have traveled to friends and family along with a number of others to take advantage of this opportunity to travel with minimal impact or wasted vacation time.
How many people are available?
According to the Bureau of Labor Statistics, the percentage of civilians who are part of the workforce has declined 2 percentage points in the past year from 63% in Jan 2020 to 61% in Jan 2021. Put simply, there's more people by about a million, but fewer people working. (see https://www.bls.gov/news.release/pdf/empsit.pdf )
Unemployment is likely to remain an issue into the future, even if companies can report strong earnings and the United States is able to report strong GDP. In other words, we may have unemployment and underemployment even if the economy looks good on paper. In the BLS graph shown above, it shows a long period of low unemployment, in the 4% range whereas now it seems to be around 6%. If that is combined with the information mentioned by Furman and Powell, it could be still higher, maybe 7 or 8%. That's anywhere from a 50-100% increase in unemployment. That is a very serious impact.
Higher unemployment will likely stifle pay increases. And furthermore, it will reduce ability for people to easily move around.
With the collapse of city microcosms, gig jobs, restaurants and other services that were parts of normal working life have taken a serious hit. Also, durable goods like cars are not so critical if people are working from home and use cars less frequently. Combined with the decrease in travel, it is not clear if that will continue to be the case.
Unemployment Target
I think that unemployment will be a strong indicator of how sustainable the recovery is. I care about that much more than PE ratios, GDPs, etc. If unemployment rate declines continue into 2021 and we once again approach a 4% unemployment, I will feel much more comfortable that we've seen our way through the worst of this.
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