Not sure you’re worried enough about the economy? You’ve come to the right place. As bad as the numbers look right now, I’m about to show you the reality is even worse.
This isn’t going to be pretty but if you think you can handle the truth, stick with me while I take you through the data.
Start with the news that the U.S. unemployment rate has risen to 4.4 percent. Sure, you might think, that’s a huge one-month increase. But, so what? Let’s look on the bright side. The unemployment rate was at an historic low of 3.5 percent. Until recently most economists would tell you that the “natural” rate of unemployment was around 5 percent. The U.S. does fine with a 4.5 percent rate of unemployment. Don’t worry, be happy.
Wrong.
The unemployment numbers released Friday are based on a survey of households done between March 8 and March 14. But those numbers are as stale as your drunk uncle’s puns. Just think about how your own life has been turned upside-down. For many of us the week of the household survey was the last week our kids were still in school. It was the last week we went to a restaurant and the last week we dropped by the grocery store on the way home from work. For too many of us, it was the last week we worked.
To get a sense about how much things have changed, don’t look at the unemployment numbers. Look at the “initial claims.” These are the total number of new claims for unemployment insurance received by all the state unemployment offices.
They’re unbelievable.
In a typical week, about 300,000 people lose a job and apply for unemployment. That might seem like a lot of people, but in the U.S. about 160 million people have jobs — in a normal week about 0.2 percent of workers lose their jobs and seek unemployment. The initial claims for the week ending March 20 — one week after the household survey of employment was complete — totaled about 3.3 million. For the week ending March 27, over 6.6 million people applied. At least 10 million people lost their jobs in the two-week period after the unemployment survey was done.
But wait, there’s more. And it’s even worse.
Those initial claims numbers significantly understate the number of recently unemployed. Not everyone is eligible for unemployment (although the criteria have been expanded). And a much bigger problem may be that the state unemployment offices have been overwhelmed with new claims. We’re hearing horror stories about jammed phones and long lines (and of course we shouldn’t be standing in lines now anyhow). We can’t know what the true number is until the next household survey in April, but early indications tell me that at least 13 million people have lost jobs since mid-March. If I’m right about that, the real unemployment rate is over 11 percent.
And just how bad is that?
Well, it turns out that in a typical recession — and make no mistake, we’re entering a recession — the unemployment rate only peaks after the recession has been going on for a long time. Despite what you may think about selfish, hard-hearted bosses, layoffs are a last resort. It’s only after things have been really bad for a really long time that businesses let go of workers. In the last recession (from the end of 2007 until mid-2009), the unemployment rate peaked at 10% about three months after the recession was officially declared over. In the last really big recession we’ve experienced before then (mid 1981 until the end of 1982), the unemployment rate peaked at 10.8% in the same quarter the recession ended.
There’s no such thing as a “normal” recession. But even if there were, this wouldn’t be the one. Be skeptical of any economist who dumps a bunch of numbers on a page and then claims that they tell a story about what’s going to happen. Be skeptical of me. All I’m saying is that the unemployment rate has already reached a record high and that peak unemployment typically happens much later in the business cycle.
This is maybe the easiest thing I’ve had to write in a very long time. I promised bad news and right now bad news is easy to find. And while I don’t think this is a good time for mindless optimism, I do think we should remember a couple of things.
First, we went into this crisis with a strong economy. All those people suddenly thrown out of work will need serious help. We can afford it.
Second, we don’t just have enough economic capital to see us through, we have social capital. Despite the ugliness in our politics, we mostly like each other. We may have forgotten how much we like each other but we do. So if you can afford it, leave a big tip when you get takeout and get to know those neighbors you never see.
Michael Davis teaches economics in the Cox School of Business at SMU Dallas.
