Moneybeat - Improvements in the labor market

MARY REICHARD, HOST: Coming up next on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Well, speaking of work, the August employment figures are in: According to government labor economists: 1.4 million jobs came online, the unemployment rate down to 8.4 percent, so single-digit unemployment, first time since March. And as has been the case when we consider the economic and policy impact of COVID, we find both causes for concern and reasons for optimism. David Bahnsen joins us now for our Labor Day edition. David is a financial analyst and adviser and good morning to you.

DAVID BAHNSEN, GUEST: Well, good morning, Nick.

EICHER: Each week, we’ve tracked “new claims for unemployment benefits” as a key metric, how many Americans are signing up for jobless benefits. 

And as a baseline, in a normal economy that figure is in the 200,000 range. But when the COVID shutdown came, the number spiked as high as 6 million, and has been falling pretty consistently since then. 

David, you’ve been looking for the labor economy to break the 1 million mark as a sign that we’re possibly near the beginning of the end or—to say it as Churchill might—the end of the beginning.

But all that to say, new jobless claims dropped significantly below 1 million to 881,000. Shouldn’t we make note, though, that the Labor Department changed how it calculates that figure, maybe address that a bit?

BAHNSEN: I don’t think that the change is relevant at all. The major facts that are fundamentally on the table about the United States’ labor market is that things are getting better. They’re getting better quicker than I’ve expected. And the areas in which they’re not getting better are with those who I think are least resourced. The wage growth of 4.7 percent year-over-year is a really telling statistic and it’s not as good as it may sound. It sounds like people are making more money. The reason wages are growing is because the area where there’s the most unemployment are at the lowest-paid sector. So, as those numbers come out, it puts the average wage up higher. That’s not the way you want to see wages growing. But, nevertheless, 250,000 jobs coming back in the month of August in retail, 175,000 back in restaurants and bars. So, we have recovered a lot of jobs in places people were not expecting it yet before the economy has really fully reopened. I think that’s encouraging. There’s definitely plenty of concerns in the data. But there’s more upside surprises than there are downside.

EICHER: A note on the headline figure, the August jobs report. Here’s what I think is sort of interesting. We lost 22 million jobs in March and April, and from May to the end of August we got about half of those jobs back—very close to 11 million. That’s a bit of a milestone, isn’t it?

BAHNSEN: Yeah, and I think it’s better than that because I think the continuing jobless claims number is a better metric. It’s very hard for me to believe that there are unemployed people who were collecting unemployment who are still unemployed and decided to stop collecting unemployment. So, I think that that continuous claims number puts you pretty well below 15 million. I don’t want there to be 10 million unemployed people and we’re not to 10 million yet, but I do think that we’re in the 12, 13 range nationwide and that’s a more encouraging number. 

But, you’re right. I mean, here’s the thing, Nick, we had an 80-something percent initially classified their own unemployment status as temporary. From the job they had lost, they believed they were going to get it back. An awful lot of those people did indeed get their jobs back. There’s still 500,000 that have been classified to permanent job losses. And there will be more. But 500,000 of permanent job losses out of a pandemic of this gravity and an economic contraction of this severity, that’s really encouraging—not if you’re in those 500,000—but relative to the overall macro-economic impact.

EICHER: OK, so this is kind of connected in a way. We’ve spent trillions of dollars to remediate the government shutdowns, money for businesses, money for unemployment programs—the so-called stimulus checks the government sent out, trillions in just one fell swoop. This is World War II-level stuff.

We received last week the debt and deficit report from the CBO, the Congressional Budget Office, no surprise. It’s nothing that we haven’t talked about before, but at the same time just kind of sobering to see the government accountants saying that the amount of government debt held by the public is more than 100 percent of GDP. In other words, we have debt greater than what the productive economy creates in a full-year’s time. Our debt is bigger than what we produce for the first time since we were fighting Hitler and Imperial Japan. Enormous number. Very sobering. Any reflections on that?

BAHNSEN: Well, yeah, I have a huge reflection on it. I wish that people were sobered by the part they should be sobered by, which is what comes next. Because you said a very important thing. This is not the biggest debt-to-GDP we’ve ever had. We had a bigger debt-to-GDP after World War II. So, in theory one could argue, OK, well, we just had a war-like trauma. But now we have to go about reducing it. 

The sobering part is we’re not going to go about reducing it. And we’re going to add more.  And we had 21 trillion of debt on the credit card balance before. And that doesn’t include entitlement spending. OK? Other than that… [laughs]

EICHER: Yeah, so far, so good. Like the Magnificent Seven, guy’s falling from a five-story building, people inside hear him saying, “So far, so good!”

BAHNSEN: Yeah. Exactly. Well, and this is the thing. I really believe that people—it’s not just a technical distinction I’m making. I don’t believe being at 100 percent debt-to-GDP right now from COVID is the problem. 

I believe it’s that we do not have a country and it’s easy to blame it on leadership, but I don’t blame it on leadership because the people elect the leadership. The leadership does what the people want. We’re not going to reduce the spending. There will not be austerity. Anyone who believes that there is is not paying attention to the appetite in this country. So they’re pretty well stuck on this and that’s why the Federal Reserve right now is the key actor in the entire American economy.

EICHER: I hate to leave it there, but we have to leave it there. We should explore this more, though. David Bahnsen, financial analyst and adviser. David, thank you.

BAHNSEN: Thanks so much, Nick.

(AP Photo/Bebeto Matthews, File) Marble sculptures occupy the pediment above the New York Stock Exchange signage, Tuesday Aug. 25, 2020, in New York.

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