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| "Quarterly Changes in the Unrate" |
But here we are in the first Covid recession, hopefully the only Covid recession, with an instantaneous spike in unemployment that is as big as the biggest increase of the 1975 recession -- and that was definitely a bad one.
Does this mean the recession that we are falling into just now will be a big, bad one? Jamie Dimon thinks so.
But as the graph shows, unemployment has not been building up. It took a massive leap because everybody all at once reacted to the Covid-19 during the last half of March. Okay, maybe not everybody. Maybe during the first half of April the massive Covid layoffs will continue. But that should be it, as far as the response to Covid-19 is concerned.
After that, we have to go back to the economic consequences of the March and April layoffs: the typical "buildup" effects. It is easy to picture a buildup like we saw in the 1949 or 1974 or 2009 recessions, only on a massive scale because the first small step, this time, was so very large. Easy to picture, but not necessarily correct.
From the October 1973 low of 4.6%, it took until July 1974 for the unemployment rate to climb 0.9 percentage points. Between February and March of 2020 -- one month -- unemployment climbed 0.9 percentage points. One month instead of eight months.
From the May 2007 low of 4.4%, it took until April 2008 to reach the 5.0 level -- an increase of 0.6 percentage points -- and another month to reach 5.4%. Eleven or 12 months that time, one month this time.
If it normally takes 8 months to a year for the unemployment rate to rise as much as it did between February and March of this year, then we simply don't have enough people employed to allow the sort of unemployment buildup that we normally get, on the massive scale suggested by the March increase. It's not going to happen.
It should be obvious that the March increase was so big, not because a recession was developing, but because we are shutting down the economy in order to fight the pandemic.
Granted, shutting down the economy has consequences...
1 comment:
Tim Duy:
"It wasn’t the airlines’ fault for doing stock buybacks. It wasn’t the bankers’ fault for making bad or levered loans. Indeed, the banking sector is the only sector that is stress tested for a severe scenario of an 8% drop in GDP. It wasn’t the borrower’s fault for buying a house they couldn’t afford. It wasn’t your fault. It wasn’t my fault.
Look, I understand, in the finance and economics world we are used to a crisis being about us. But, this time it isn’t about us, as least not directly. This was as pure a shock to the national and global economies as one could imagine. One little tiny thing – you can’t even see it! – blew it all up overnight."
Me: "here we are in the first Covid recession"
Tim Duy:
"The only moral imperative is holding together the economy so that those 150 million can resume their lives as quickly as possible. The only moral imperative is working to prevent another 15 million people from losing their jobs."
Me: "shutting down the economy has consequences" ... "the typical 'buildup' effects".
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