The most recent jobs report suggests the economic recovery will be much faster than many expected. While many predicted a decrease in employment for May, employment actually increased by 3.84 million from April to May. Correspondingly, rather than rising, the total number of unemployed persons fell 2.09 million. The unemployment rate currently stands at 13.3%, down from 14.7% in April and in sharp contrast to the 20% rate many professional forecasters were predicting.
The fast turnaround reflects the gradual lifting of economic restrictions across states and reduced fears of consumers, workers, and business owners, who have a better understanding of the risks of COVID-19 than they did in mid-March when the slowdown in activity began.
The global pandemic has been incredibly disruptive. But, as Senior White House economic adviser Kevin Hassett explained in late May, it has had a limited effect on our long-run ability to produce and the kinds of goods and services we like to consume.
We have the same machines and equipment that we had in February, and the same educated workforce required to use them. We still want to go to the dentist, get a haircut, enjoy a nice cocktail. None of that has really changed. We have just been waiting to do those things until we believed it was relatively safe, and until it was legally permissible.
While the speed of the recovery suggested by the jobs report is surprising, the fact that many people are returning to work is not surprising at all. Of the 20.6 million unemployed persons in April who had lost their jobs or ended temporary employment, 87.6% were on temporary layoff. Only 2.0 million had permanently lost their jobs.
The fear at the time was that some of these temporary layoffs would become permanent, as businesses unable to stay afloat began to close. Fortunately, that does not appear to be happening to the extent many anticipated. In May, 83.9% of the nearly 18.3 million unemployed persons who had lost their jobs or ended temporary employment were on temporary layoff. Fewer than 2.3 million have permanently lost their jobs—more than April, but still far less than was feared.
Overall, the May jobs report is cause for cautious optimism. People are returning to work. It seems that most of the temporary job losses were, in fact, temporary. And we are getting a glimpse of how quickly the economy can rebound from a temporary disturbance.
But there will be some longer-lasting costs of the pandemic and corresponding policy response as well. Some otherwise viable businesses have closed as a result of the COVID-19 contraction. And no doubt others will follow. The machines and equipment those businesses employed will have to be reallocated. Their workers will have to find jobs elsewhere. Some will need to retrain or relocate. All of that takes time.
Taken together, the most recent jobs report suggests we could see output recover to 90% or more by the end of August. That’s great news. But a complete recovery might take much longer than that.
William J. Luther
William J. Luther is the Director of AIER’s Sound Money Project and an Associate Professor of Economics at Florida Atlantic University. His research focuses primarily on questions of currency acceptance. He has published articles in leading scholarly journals, including Journal of Economic Behavior & Organization, Economic Inquiry, Journal of Institutional Economics, Public Choice, and Quarterly Review of Economics and Finance. His popular writings have appeared in The Economist, Forbes, and U.S. News & World Report. His work has been featured by major media outlets, including NPR, Wall Street Journal, The Guardian, TIME Magazine, National Review, Fox Nation, and VICE News. Luther earned his M.A. and Ph.D. in Economics at George Mason University and his B.A. in Economics at Capital University. He was an AIER Summer Fellowship Program participant in 2010 and 2011.
Selected Publications
“Cash, Crime, and Cryptocurrencies.” Co-authored with Joshua R. Hendrickson. The Quarterly Review of Economics and Finance (Forthcoming). “Central Bank Independence and the Federal Reserve’s New Operating Regime.” Co-authored with Jerry L. Jordan. Quarterly Review of Economics and Finance (May 2022). “The Federal Reserve’s Response to the COVID-19 Contraction: An Initial Appraisal.” Co-authored with Nicolas Cachanosky, Bryan Cutsinger, Thomas L. Hogan, and Alexander W. Salter. Southern Economic Journal (March 2021). “Is Bitcoin Money? And What That Means.”Co-authored with Peter K. Hazlett. Quarterly Review of Economics and Finance (August 2020). “Is Bitcoin a Decentralized Payment Mechanism?” Co-authored with Sean Stein Smith. Journal of Institutional Economics (March 2020). “Endogenous Matching and Money with Random Consumption Preferences.” Co-authored with Thomas L. Hogan. B.E. Journal of Theoretical Economics (June 2019). “Adaptation and Central Banking.” Co-authored with Alexander W. Salter. Public Choice (January 2019). “Getting Off the Ground: The Case of Bitcoin.” Journal of Institutional Economics (2019). “Banning Bitcoin.” Co-authored with Joshua R. Hendrickson. Journal of Economic Behavior & Organization (2017). “Bitcoin and the Bailout.” Co-authored with Alexander W. Salter. Quarterly Review of Economics and Finance (2017). “The Political Economy of Bitcoin.” Co-authored with Joshua R. Hendrickson and Thomas L. Hogan. Economic Inquiry (2016). “Cryptocurrencies, Network Effects, and Switching Costs.” Contemporary Economic Policy (2016). “Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia.” Co-authored with Lawrence H. White. Review of Behavioral Economics (2016). “The Monetary Mechanism of Stateless Somalia.” Public Choice (2015).
