With the pandemic creating an employment nightmare, the unemployment rate has been a closely watched statistic. Employment is still below pre-pandemic levels, but has rebounded fairly well. That may be giving us false hope, though, since there are other jobs-related statistics to consider.
In a previous article (https://www.carlandarda.com/?p=1370) we looked at the difference between employment rate, measuring what percentage of those in the labor force have jobs, and labor force participation rate, measuring what percentage of people are able to hold jobs, whether they currently do or not. We already saw there that LFP dropped as a result of the pandemic, indirectly reducing the unemployment rate without actually creating jobs.
But there’s another statistic that sheds some light on what the pandemic has done to the jobs market. The long-term unemployment rate specifically measures what percentage of those looking for a job have been searching for 27 weeks or more. Before this recession, the LTU rate has been around 20%. This means that 80% of unemployed people were finding jobs, retiring, or giving up entirely within six months. This rate has been going up rapidly and was at 37% as of November 2020. Not only have more people given up or been forced into retirement, but more of those still searching for jobs aren’t able to find one quickly.
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The Federal Reserve is now looking to the future to figure out their plan for once the economy has recovered. The Fed doesn’t intend to make changes until a solid recovery has occurred, which they anticipate will be at least three years from now. Their new goals will be to maintain stable prices, maximum employment, and moderate long-term interest rates.
How do they plan to enact this? Well, not directly. The Fed’s plan is to maintain a 2% average annual inflation rate, which actually means increasing it above 2% in the years following a recession when inflation rates are low. Their expectation is that higher prices will boost the job market. The Fed can’t increase the annual inflation rate directly, though. They will have to put money into the hands of investors and lenders, and simply hope that they spend it.
This is only one pitfall of the Fed’s plan. It also promises nothing for the housing market, as prices are already high, not low as they are normally during a recession. The housing market needs the job market to stabilize before it can even begin to recover. Additionally, the Fed’s reasoning that higher prices will increase employment is flawed. Most people don’t choose to remain unemployed, unless they’re abusing the unemployment welfare system, which is extremely rare and what few cases there are would be better resolved by reforming the welfare system. Forcing already unemployed people to pay higher prices is not suddenly going to give them a job.
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As of July, over half of adults under 30, 52%, are now living with one or both parents. The previous recorded high was 48% in 1940, eight decades ago. No data is available for the period including the Great Depression, but it’s likely the number was higher during that period. The majority of this increase comes from those in the 18 to 24 age range, with particularly large spike in April.
In some instances this could be a conscious choice, at least initially, as people moved in with their parents during lockdowns so they could isolate with family members instead of alone while working from home. Even for those for whom this was the plan, their stay has been extended longer than expected. For most people, though, it’s because they aren’t working from anywhere — it correlates strongly with rising unemployment numbers. Unemployed young adults aren’t financially stable enough to become independent homeowners. Increasing student loan debt is also a significant factor.
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Of course, no one who was laid off during the lockdowns was happy to lose their job. But at least initially, the expectation for most was that they would be returning to their job once the lockdown was over. In most cases, that hasn’t happened, both because COVID-19 has not yet been contained and because many of those positions simply don’t exist anymore.
The economic recession has been difficult on small businesses with tight budgets that are not getting as many customers, but still have the same costs without laying off workers and often even closing down facilities entirely. This means that the same businesses won’t have the extra income to rehire the workers they laid off. Businesses that are transitioning online rather than closing down may be hiring people again once a vaccine is widely available, but probably not the same people — they’re going to need a different skillset. People nearing retirement may be forced to retire early, as most businesses won’t want to hire someone who will only be working there a few years before retiring. All in all, a currently estimated 50% of jobs lost during COVID-19 will not be recovered, despite the estimate being 17% in April.
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Record-high unemployment since the Great Depression is worrying for people looking to buy a home. And it’s true that it’s very difficult to buy a home while unemployed, since lenders are are looking for stable income. Unemployment income is considered temporary income, which lenders aren’t going to look at. Even once you find a job again, lenders typically want two years of continuous employment. Gaps in employment older than two years don’t impact your chances of lending negatively, though, so that won’t be a concern in a long run.
Another problem is that lack of income could put a strain on your credit score. While you will eventually become employed again, changes to your credit score can be much harder to erase. In order to maximize your chances of getting a loan in the future, you should do as much as you can, starting now, to keep your credit score intact. Always make minimum payments if possible. Ask your landlord and credit companies about other payment plans, deferment, or forbearance. Cut back on unnecessary spending. The good news is that even if your credit score does take a dive, once you’ve settled the debts and start to rebuild your credit, it shouldn’t take too long to get your credit score back up — roughly six months to year, meaning you may have already recovered your credit before lenders will consider your employment to be stable.
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The US plan to start a trade war with China is bad news, predict economists and management experts at UCLA. This year saw a GDP growth of 3%, which President Trump optimistically expects to rise by 4-6% going forward. According to the experts, though, over the next two years, the rate is expected to drop to 2% and then 1%.
Job growth is predicted to dip from 190,000 per month to 160,000 per month by 2019 then fall off dramatically in 2020 to 40,000 per month. While the expected rate of unemployment is 3.5% in 2019, a fifth of a percent lower than the current rate of 3.7%, by the end of 2020 it could rise again to 4%.
The worry of the UCLA team of economists is that recent attempts by businesses to invest while interest rates are low to profit later will cause them to carry more debt than expected as trade tensions rise. Furthermore, it’s not just these businesses but the whole economy that will suffer because of rising prices coupled with slower growth.
In the last decade since the economic crisis, the economy has been improving steadily. Unemployment is at 3.8%, the lowest since 2000. Prospective buyers have been able to save money and are feeling confident. More people have enough money to buy now. There’s just one problem: There aren’t enough homes, so the market is stalling. There are two main factors driving low inventory. Sellers want to hold on as prices continue to rise, and the international market is increasing construction costs, leading to builders seeking more expensive projects with a bigger return on investment. Also contributing to a stalling market is still-rising interest rates. First time homebuyers are struggling the most, as they’re entering into a highly competitive market and getting outbid the moment they save enough to buy.