Jack Rasmus

Two well-known and highly respected mainstream economists, Carmen Reinhart, a chief economist for the World Bank, and Vincent Reinhart, chief economist for Morgan Stanley bank, have recently published an article in the widely read capitalist source, Foreign Affairs, entitled ‘The Pandemic Depression’. Arguing primarily from a global perspective, the economists have concluded the US economy as of the 3rd quarter 2020 is not merely now experiencing a ‘great recession’ but now qualifies as another Great Depression.

There is another perspective, however, from which to also argue the US economy is in a bona fide Great Depression. It is from the perspective of the US Labor Market. For as of the late 3rd quarter 2020 the US economy suffers from an unemployment rate of no less than 25%–i.e. the same rate during the worst years and quarters of 1932-33, the depths of the 1930s Great Depression. Yet what we hear from the media and politicians of both wings of the Corporate Party of America—aka the Republicans and Democrats—is that unemployment is only 8.4%! That’s barely one-third of 25%.

Republicans and Trump have used the low-balled number of 8.4% as the main excuse to prevent the passage by Congress of any further economic stimulus. The Democrats have voiced no effective rebuttal since they too have accepted the 8.4%. So what is it? 8.4% and not even a great recession any longer? Or 25% and the possibility the ranks of unemployed are about to grow even further?
What follows is a debunking of the 8.4% unemployment rate and a quantitative explanation why that rate is 25%–as well as a statement of the forces that will likely result in an even further deterioration in the unemployment rate in the 2020-21 period ahead.

(25% & 40 Million Still Unemployed)

After the massive job implosion last spring, a weak rebound in jobs has occurred as the economy reopened over the early summer. But that jobs rebound has shown clear signs of faltering by late July and has clearly deteriorated by late August as unemployment claims have risen in recent weeks. Even more ominous, as that has near term condition of jobs has worsened, parallel indications show the emergence of a second, more permanent phase of job loss on the horizon.
Since early March 2020, more than 55m workers have filed for, and received, unemployment insurance benefits.

According to official government data, as of the end of August, 29.5 million US workers were still getting benefits. That 29.5m reflects 18.4% workers clearly unemployed. But it’s also a subset of the total jobless, since millions haven’t been able to get benefits. So the actual number of jobless as of labor day 2020 is north of 29.5m and 18.4% Nevertheless, the statistic we hear is 8.4% unemployment rate and 13.4 million unemployed. What gives?

Some of the 55 million who received benefits at some point over the course of the last six months of the pandemic began returning to work starting in May. The number returning grew in June, but then began slowing once again in July and August as the rebound in jobs began to falter in July-August.

Others of the 55 million have simply exhausted their benefits. Many are still unemployed but no longer part of the 29.5 million that remain on benefits.
In addition, millions more workers since March have entered the labor force for the first time but they too have not been eligible to receive benefits due to lack of prior work history as first time job seekers—which precludes them from receiving unemployment benefits. Like those having exhausted their benefits, they too are unemployed but not part of the 29.5m still getting benefits at the end of August.

Joining the ranks of those unemployed but not receiving benefits are the millions who never got benefits because they simply gave up looking for work for various reasons and dropped out of the labor force—which puts them in a category in which, according to US labor department methodology, they aren’t counted as unemployed. They may be out of work, but given the oxymoronic way the US defines unemployed they aren’t considered unemployed for purposes of calculating the unemployment rate!

Finally, there are the additional millions more who never were able to get benefits since March even though they tried, due to various bureaucratic reasons.
Whether having exhausted their benefits, or first time entrants to the labor force not eligible for benefits, or whether they’ve dropped out of the labor force, or were denied benefits for bureaucratic reasons—all these groups are nonetheless part of the unemployed, even though they are not counted among the 29.5m still getting unemployment benefits.

In short, the 55m who got benefits at some point since March, and the 29.5m who are still getting them, are in both cases just a subset of a much larger number of jobless. There are millions more unemployed who never got on the unemployment benefits rolls since March and still not able to get benefits. There’s at least 10-15 million more jobless but without benefits. That means an unemployment rate, at minimum, of 25%–not the 8.4% peddled by the media apologists for Wall St. and the politicians of the Corporate Party of America (aka Trumpublicans and Democrat wings of that party).

Last April 2020 perhaps as much as 50% of the total US labor force of 160 million workers was jobless for approximately two months. As of today, Labor Day 2020, at minimum a fourth, or 25%, still remains so.

That 25% is about the same jobless rate as occurred during the worst years of the 1930s Great Depression, 1932-33!

Here’s why it’s 25% at minimum today, Labor Day, and quite possibly even more:

(Dissecting the Government’s Low-Ball U-3/8.4% Unemployment Rate)

Despite an actual 25% unemployment rate (i.e. 40 million still jobless) what we hear from the media and politicians is that the unemployment rate is only 8.4%. And thus the total unemployed is only 13.4 million. (When 8.4% is calculated on the 160 million total US labor force, the number unemployed comes to 13.4 million).

The official government statistic of 8.4% jobless is repeated ad nauseam in the media. It’s then picked up by politicians, commentators, and even progressives who should know better and parroted back to the public. But 8.4% is nonsense. A purposely low-balled, cherry-picked number for public consumption. Here’s why:
To begin with, the 8.4% is the government’s official U-3 unemployment rate. The problem with U-3, however, is that it represents only full time workers who became unemployed. But there are at least 50 million workers in the US economy who are not ‘full time’, but part time, discouraged and what the government calls the ‘missing labor force’. The government adds these groups to its U-3 and 8.4%. That raises the unemployment rate in August to 14.2%–not 8.4%. And that translates to a total unemployed of 22.7 million—not 13.4 million.

The 14.2%/22.7 million numbers are carefully avoided in media reporting. One almost never hears the 14.2% and virtually always only the 8.4%, regardless that both are official government statistics.

But even that 14.2%/22.7m is grossly under-estimating the total unemployed. Remember that other government statistic, i.e. those receiving unemployment benefits? Workers receiving benefits as of late August was 29.5 million. And that represents a 18.4% jobless rate. Obviously, if a worker is getting benefits, he/she must be unemployed, right? But you’ll hear 29.5 million and 18.4% in the media even less than the 14.2% and 22.7 million.

In the case of the 29.5 million, moreover, we have another example of ‘low-balling’ and cherry-picking a statistic –not unlike cherry-picking the U-3 stat instead of the U-6. The media reports the number of workers getting benefits at only 16 or 17 million, not 29.5 million!

But here’s what they don’t explain when citing only 16-17 million getting benefits: That number accounts only for workers receiving unemployment benefits under the traditional State Unemployment Benefits system. The 16-17 million excludes independent contract workers, gig, freelance, and others getting benefits under the supplemental Pandemic Unemployment Insurance (PUC) program created last March as part of the Cares Act. In other words, there’s two unemployment benefits systems and the media typically chooses to report only the one when indicating workers getting benefits. There’s the traditional State Unemployment Benefits system and the new Supplemental PUC system that for the first time ever has provided benefits for the 50m non-traditional workers who were before March never eligible for benefits but are now and will continue to be eligible at least through December 2020 when that PUC system expires. Once again, it’s media cherry-picking and number low-balling time.

The State system and the PUC system together comprise the 29.5 million workers still getting unemployment benefits. 29.5m receiving benefits is certainly more than 22.7m (U-6) and even more so than 13.4m. It’s not that the government job statistics consciously lie (although in some cases they come quite close). It’s just that the government produces low ball numbers for the media to pick up, which they do and pound away at. And then commentators, politicians, business sources play their role of spreading the low ball numbers and conveniently ignoring other data.

How then did the US economy get to 29.5 million and 18.4%? Here’s the trajectory: In April more than 6 million workers filed for benefits every week for two weeks, followed by 3-5 million more for several more weeks thereafter! The weekly new benefits filing rate declined as the economy began to reopen in May. However, after May new State unemployment benefit claims still averaged 1 to 2 million every week through July; In addition, the number of PUC initial benefit claims per week also exceeded 1 million a week, every week, through July as well.

The combined totals of the two programs—State and PUC— thus never fell below 2 million initial filings a week throughout the period of the reopening of the economy, from May through July. It has also remained a combined more than 1.5m/week throughout August. That’s 6 million new unemployment filing claims—i.e. 6 million newly unemployed—in just the last month of August. Bringing the total on unemployment benefits to the 29.5 million.

But wait! The 29.5m represents only unemployed workers who were able to get benefits. There’s many more workers who became jobless but were unable to successfully get benefits; or who gave up even trying in the first place and simply dropped out of the labor force altogether. Who are they? And how great are their numbers?

Their numbers are well north of even the 29.5 million and 18.4% unemployment rate. The true total jobless includes their numbers plus the 29.5 million.

For the 29.5m receiving benefits as of Labor Day 2020 excludes those jobless who were unable to get benefits in the first place, who filed unsuccessfully for benefits, who got lost in the bureaucratic process of filing and never got benefits, or who just couldn’t figure out how to file and were not helped and gave up. The 29.5m also represents those having exhausted benefits during the last six months. And those who chose not to file even though unemployed. Finally, the 29.5m excludes new entrants to the labor force over the past six months who weren’t eligible for benefits but haven’t been able nonetheless to find work given the collapse of the economy! All these categories of jobless workers represent the unemployed as much as those receiving benefits include the obviously unemployed. So the number of jobless is actually much higher than even 29.5 million. The 29.5m is therefore just a subset of the true total unemployed.
So how many more are jobless but not getting benefits as of Labor Day 2020?

(Estimating the Actual Jobless—With & Without Benefits)

You won’t get an accurate number from the government of the total unemployed who didn’t get benefits but have been, and remain, nonetheless jobless since February 2020.

However, private research surveys do give us an idea. MarketWatch, a business research and media company, published an interesting feature story in Fidelity.com this past week, based on its survey of the Philadephia/Mid-Atlantic region of the economy. That case example survey provides a reasonable estimate of the magnitude of those jobless since March 2020 but not among the 29.5m that succeeded in obtaining unemployment benefits.

Of the total number of workers in the Philadelphia, Mid-Atlantic US region who lost their jobs since February, MarketWatch reports that only 87% actually filed successfully for benefits. And of that 87%, only 65% who bothered to file actually ended up getting benefits. That means only 52%, or roughly half of the unemployed in the Philadelphia area, actually got unemployment benefits. The other 48% were just as much out of work, but without benefits.

If Philadelphia represents a microcosm and relatively accurate sample of the entire US economy labor market, simple extrapolation means that the 55 million who successfully got benefits since March 2020 may represent barely half of the total of those who have been unemployed since March!

That means the 29.5 million still getting benefits may represent barely half of all those still unemployed. There may therefore be between 40 and 50 million workers in America still jobless—those still getting benefits (the 29.5m) and those without benefits (10m to 20m).

Thus, the oft-reported official US numbers of 8.4% unemployment rate and 13.4 million total out of work is dwarfed not only by the government’s own alternative U-6 data, as well as by its own data showing 29.5 million jobless getting benefits, but also by the fact the total jobless without benefits may be nearly as large as those with benefits.

Assuming the low-end estimate of 10 million still jobless but without benefits, and adding that to the government data that shows 29.5 million still on benefits, a total jobless of at least 40 million is the result. And that’s the low end assumption. It may be well over 40 million as of end of August 2020.

40 million is 25% of the labor force. And it’s far greater than the 8.4% and 13.4 million that the media and politicians keep drumming into our ears. What the media and politicians are telling us is only one-third of the total unemployed!
Corroborating this estimate of at least 25% unemployed today is yet another government statistic called the labor force participation rate, or LFPR. It represents workers who have dropped out of the labor force altogether. It’s in addition to the 29.5m and 18.4% rate since, by government guidelines and definitions, those who drop out of the labor force cannot receive benefits.

(Labor Force Participation Rate Suggests 5.5 Million Dropped Out)

The Labor Force Participation Rate (LFPR) is the percent of working age Americans who have left the Labor Force. They are neither working nor actively looking for work. But they are jobless nonetheless and should be considered among the unemployed. The LFPR was 63.4% of the 164.5 million civilian labor force in February 2020. By August the LFPR dropped to 61.7% out of a 160 million labor force. The difference translates into approximately 5.5 million workers who dropped out of the labor force since February 2020. Having dropped out they are not actively looking for work and therefore not considered unemployed by the government for purposes of calculating unemployment rates. Nor are they eligible to receive benefits since, as drop outs, they are not actively looking for work. However they are nevertheless unemployed and their 5.5 million are additional to the 13.4 million U-3 and 22.7 million U-6 unemployed or the 29.5 million getting benefits. They are among the ‘other’ 10-20 million jobless but not counted by the U-3/U-6 or included in those receiving benefits. Their number strongly corroborates that there are many millions more unemployed—not getting benefits or ignored by the government’s official monthly jobless numbers.

Let’s look at the latest of those government monthly employment numbers. Once again what appears is a fudging and manipulation of the numbers in yet other ways as well.

(August 2020 Government Employment Report)

The first thing to know about the August Employment Report is that it isn’t for the month of August. It is only for the first two weeks of the month (and the last two weeks of July). The data cuts off around the 12th of the month. So what we’re looking at in a ‘August’ report is really July 13 to August 12 jobs data—i.e. before unemployment claims began to rise again in late August.

Second, it’s important to understand that the August jobs numbers are not the actual number of jobs created July 13-August 12. It is not the raw data of actual jobs created or lost that’s reported—for August or for any month in the Labor Dept jobs reports.

The government takes the actual raw data and performs various statistical operations on that raw jobs data and reports that adjusted statistic as the actual number of jobs, even though it isn’t. But that’s what all statistics are—an operation and adjustment on the actual raw data. Moreover, the August raw data itself may be over-stated as well, not just altered by the statistical operation(s).

Raw (actual) jobs data comes from several sources: Large businesses report to the government changes in employment, layoffs, hires, etc. (called the Establishment Survey) The government also surveys a sample of households monthly (called the Population Survey). But there’s a third, more questionable source, based on data from the creation and destruction of small businesses, called the (net) New Business Development survey (NBD). That NBD data, however, represents businesses destroyed or created 6 to 9 months before the month in question—i.e. in this case August. So we get six to nine month old data integrated with current data from the Establishment and Population surveys. Mixing such older data with more recent is a questionable statistical practice. It means adding positive net new business development pre-March and Covid, in January-February, to current jobs data. That has the effect of dampening the actual numbers of August jobs unemployment. That is, it adds to and over-estimates the number of jobs created in August. If net business development for July were used—not January/February—it would mean integrating massive small business destruction that has occurred under Covid since March. That would have the opposite effect: it would dampen job creation numbers in August and increase unemployment numbers.

That’s just one example how ‘statistical operations’ on data can serve to exaggerate job growth and under-estimate unemployment.

Another sometimes questionable statistical operation is called the Seasonality adjustment. The seasonality statistical adjustment in August reduced the number of new filings for unemployment benefits in just the last week of August by 130,000. The government then reported a ‘seasonally adjusted’ 881,000 new unemployment claims for the week ending August 29, when the actual number was 1,011,000.

Similarly, in August there were 9,118,000 reported as unemployed in August when the actual data, not seasonally adjusted, for August showed 9,286,000 actually unemployed—i.e. a difference of 168,000. Put another way, there were 168,000 more jobless in actuality than reported as unemployed. 168,000 were artificially reduced from the unemployed ranks due to statistical operations involving just seasonality alone!

The statistical models assume more return to work at the end of summer than, say for instance, at the end of spring. But the point is these models are based on assumptions developed in normal times under normal conditions. Since Covid neither times or conditions are ‘normal’. Yet the government continues to use the same assumptions, models, and statistical operations to change the actual data, the actual number of employed and unemployed, to the statistical representations of the actual numbers!

The latest August official Labor Dept. job data report says 1.37m new jobs were created. This is the statistic. But the actual data, for above reasons, is far fewer new jobs and far more unemployed.

The August Report is biased in yet another way. It purports to show the condition of the US private sector economy. But 238,000 new US census workers were hired in August who’ll be gone by October. Take away the seasonality adjustment of 168,000 jobs and the 238,000 very temporary government Census workers, and the private sector actual job gain in August was roughly 964,000 not 1.37m. Even without the deduction of seasonality, the private job report company, ADP, often cited as a check on government job reports, reported only 428,000 net jobs growth in August—i.e. less than half of the government’s August jobs report.

1.37m new jobs reported, minus the 168,000 seasonal upward adjustment and minus the 238,000 Census workers, and the difference is 964,000 actual net private sector jobs created in August, or about half a million fewer than in July.

Even accepting the government’s own inflated monthly jobs numbers, the rate of monthly job growth has been slowing rapidly since May 2020: In May 3.4 million new jobs were reported as created. In June, as the economy reopened virtually everywhere, 4.7 million new jobs. But in July, as the economic rebound began to fade, only 1.5 million, and now as of August 12, only 1.37m. In short, even questionable statistical operations cannot total cover up the obvious downward trend.

Perhaps a better indicator of this downward trend post-August 12, is the more than 4 million workers who have newly filed for unemployment benefits the last three weeks, and undoubtedly hundreds of thousands more were also newly jobless but who were not able to get benefits or just dropped out of the labor force giving up searching for a job in today’s deeply depressed labor market.
And yet we read and hear from the media and politicians that the job market is healing rapidly and job recovery is accelerating—even as data show it is in fact deteriorating. We hear unemployment is declining fast when in fact it has begun to rise once again.

(Summing Up Jobs: March Through August 2020)

To sum up the bigger true picture of jobless during the first six months of the Covid era:

• 55 million filed for benefits, state and PUC, since last February, out of 160m labor force
• Tens of millions more failed to file or filed unsuccessfully and didn’t get benefits
• 29+ million are still getting benefits as of September Labor Day 2020
• 10-20 million still unemployed but not getting benefits as of Labor Day 2020
• 1.5 million are continuing to file first time for benefits weekly as of early September
• 8.4%/13.4m official U-3 jobless rate is the preferred ‘cherry picked’ media number
• 14.2%/22.7m is government’s alternative data (U-6) yet ignored by media & politicians
• 13.4 or 22.7m still falls far short of the 29.5m/18.4% actually still getting benefits
• At least 5.5m dropped out of labor force the past 6 mo. but not considered unemployed
• The actual unemployment rate is 25% and 40 million are still jobless, at minimum
• Even government monthly stats show a sharp slowing of new jobs added each month
As bad as the picture looks for Phase 1 (March-to Labor Day 2020) of the current crisis, future prospects for jobs for American workers after Labor Day 2020 appear even bleaker.

(2nd Wave of Restructuring & Permanent Job Loss)

The Covid virus did not cause the current economic crisis—i.e. the 2nd Great Recession. It did precipitate and accelerate and deepen that crisis, however. The US economy was weakening steadily throughout 2019, with the important sectors of business investment and manufacturing actually contracting throughout the year. Should the virus therefore disappear overnight, the deep wounds to the US economy will remain. Many of the 40 million furloughed starting in March and still jobless will not soon be recalled to their prior work—if at all. Entire industries like travel, entertainment, food & lodging, and others will not return to the ‘old normal’ of pre-Covid. A new normal will occur, but it will be one based on a much reduced output in various industries and companies and therefore employment.

Many major corporations have already announced thousands—and in some cases tens of thousands—of permanent layoffs that will take effect in the coming months. These layoffs will be permanent. They represent the leading edge of a coming second wave of job loss.

Industries deepest affected by the growing permanent restructuring and downsizing include Airlines, surface transportation, cruise lines, resorts and hotels, casinos, malls and retail services, education services, local food services, and many sectors of manufacturing that support all these industries with products and maintenance services. This is a large swath of the US economy, in both GDP and employment terms. A clearer picture of which industries, and how deeply impacted, will be clearer after September 30 when the government publishes its quarterly industry-specific statistics for the second quarter 2020.

In the meantime, announcements of thousands of planned layoffs are being announced weekly by United, American, and other airlines; by Boeing and other aerospace suppliers; by big box mall-based retail companies like JC Penneys, Kohls, Nieman Marcus and others; Movie Theater chains AMC and Cinemark; oil drilling and fracking companies; hospitals’ non-Covid related services health workers; beverage suppliers to hotels and restaurants like Coca Cola—to mention just those making front business page news in recent weeks. Tech companies are all restructuring despite healthy profits performance, shifting to remote employment on a major scale that reduces employment costs via layoffs. They will require therefore fewer building support and operations employees. Many other businesses may also shift to remote activity, with the result that urban office buildings will become less employment populated and much of the local city support services for the office building sector will dramatically downsize in employment as well.

The Federal Reserve Bank’s latest ‘Beige Book’ summary of the US economy warned that millions of workers temporarily furloughed since March may have been permanently laid off by August and more may become so. This shift of temporary laid off to permanent layoff status is corroborated by a survey that showed 3.4 million workers believe they won’t be recalled because their companies have either permanently closed or said they planned to close.

Added to this leading edge of the next wave of layoffs due to business restructuring and downsizing is the likelihood of millions more public sector state and local government layoffs. More than a million government workers have been already laid off since March. Budget and deficit problems accelerating rapidly for state and local governments due to the Covid pandemic (i.e. more expenses amidst collapsing tax revenues) will result in still more public employee layoffs. It’s been estimated these governments will need between $500 billion and $940 billion in bailout rescue in a new stimulus bill from Congress to avoid the mass layoffs. However, it appears extremely unlikely they’ll get much, if anything, in a next Congressional stimulus bill in 2020. Layoffs are therefore inevitable and in some of the larger states and cities they will be significant and forthcoming before 2020 year end.

Small business failures and permanent closures are already rising significantly. As small businesses close, jobs associated with them will disappear. And the numbers could easily amount in the millions by the end of 2021.

There are roughly 30 million small businesses in the US economy. Millions of those temporarily closed since March will fail to reopen. And the worse may be yet to come. The National Federation of Independent Businesses, an industry trade group for small business, forecasts 21% will likely fail within another six months. That’s one-fifth of the 30 million or about 6 million. Even if a high end estimate, the number is still unprecedented. At the low end is the US Census ‘Business Pulse’ survey that predicts a 5% small business job loss. That’s 1.5 million closures. Whether 6 or 1.5 million, it’s a large number with an even larger number of employees thrown out of work as the businesses close in coming months.

Other forces driving a second wave of layoffs are more difficult to estimate but no less likely. Among them include the Covid related requirement that K-12 schools implement home remote school education services. Many working class households are two-parent wage earners. They lack resources to pay for babysitters or nannies. Those with K-6 year old children in particular will be forced to have one parent quit and stay at home to ensure home schooling. These ‘quits’ will not show up as unemployed, since the parent is ‘out of work’ but not actively ‘looking for work’. They will show up as labor force drop outs. But they will be unemployed nonetheless! It’s uncertain how wide spread the remote K-8 education services will be this fall, or how long it will last. One recent estimate, however, by Brevan Howard Asset Management to its investors, concluded no fewer than 4.3 million US workers could stay home given lack of child care arrangements. A resurgence of Covid may mean millions more may have to quit their jobs and choose unemployment in order to provide their young children education via remote learning.

Another development that for now is difficult to estimate as well is the impact on employment of the lack of a necessary fiscal stimulus for households. The elimination of the $600 supplement pandemic unemployment benefit at the end of July has resulted in a reduction of no less than $65 billion in consumption spending per month starting this past August. Evictions and mortgage foreclosures will also have a negative impact on consumer household spending, which is nearly 70% of the economy and US GDP. Already the loss of the $600 benefit, combined with rising evictions, is having a major effect on consumer confidence which in August began falling again sharply. This could be exacerbated by an inadequate stimulus bill in September. Reduced working class benefits and household incomes will have an impact on consumer demand for products and services in the economy across the board, affecting nearly all sectors of businesses. And as that demand drops, it will almost certainly lead in turn to less consumer spending and in turn to more layoffs.

The preceding five forces—i.e. large corporate restructurings and permanent downsizing, a sharp rise in public sector layoffs, unprecedented business closures, remote schooling requirements of two working parent families, and general demand reduction due to inadequate next stimulus—all translate into a second wave of layoffs now emerging.

These longer term job reduction forces mean the recent tepid rebound in jobs during May-July will likely give way to a relapse in the US labor markets in coming months and a rise in unemployment. The trend may already be appearing as of late August as first time claims for unemployment benefits have begun to rise once again.

And then there are still the ‘known unknowns’ that could exacerbate conditions further: the increasingly likelihood of a historic political crisis surrounding the November 3 elections. That will breed massive uncertainty and potentially an even worse economic crisis and associated layoffs. Or the Covid virus could resurge significantly once again as winter sets in, as many fear will happen. That too will lead to more shutdowns and furloughing of jobs once again. Even further down the road is the 2021 ‘black swan’ event of another financial crisis, as businesses, households, and local governments begin to default on their debts and precipitate another financial crisis similar to 2008-09.

Jack Rasmus
September 8, 2020

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For my analysis of today’s August 2020 job numbers, plus Jobs since March and forecast of second wave of unemployment coming–as well as the condition of American Labor this Labor Day 2020–listen to my Alternative Visions radio show podcast today, 9-4-20

TO LISTEN GO TO

:

https://alternativevisions.podbean.com/e/alternative-visions-labor-day-in-the-era-of-covid/

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In mid-August 2020 I was interviewed in depth with host, James Kunstler, on various topics related to the current Great Recession–i.e. what constitutes a bona fide fiscal stimulus, how the current contraction compares to 2008-09, 1929-30, and 1907-13 similar great recessions, how the March Cares Act hasn’t been spent by big business, nor has any real fiscal stimulus passed as yet. The three ‘tail risks’ of inadequate fiscal stimulus, political instability in the US around a contested election, and forces developing toward a potential major financial instability in 2021 as defaults and bankruptcies rise is discussed. Why delinquency rates in housing are rising as evictions also escalate.

To Listen to the hour long interview GO TO:

https://kunstler.com/podcast/kunstlercast-333-confab-with-political-economist-dr-jack-rasmus/

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Listen to my August 21 Alternative Visions radio show dedicated to reviewing recent articles by mainstream economists who are now increasingly predicting a great depression–including World Bank and Mellon Bank chief economists, Carmen and Vincent Reinhart, who argue we’re in it already.

TO LISTEN GO TO

:

https://alternativevisions.podbean.com/e/alternative-visions-more-economists-predicting-great-depression/

Show Announcement

:

Dr. Rasmus reviews the growing number of mainstream economists now beginning to predict the current economic crisis, either is now or soon may become, another Great Depression. World Bank and Mellon Bank chief economists, Carmen and Vincent Reinhart’s forthcoming essay in the prestigious Foreign Affairs Journal is reviewed. Rasmus notes how their analysis is similar to points he’s been making since March 2020. Other views similar by liberal dean of economics, Paul Krugman, who calls today’s crisis ‘The Greater Recession’ and others are noted. Few mainstream economists now call it a V-shape recovery, unlike this past spring. Rasmus then reviews actual GDP contractions world wide in 2020 and why they suggest a ‘great recession’ that is weakening at best in the 3rd quarter. Why the current economy will weaken: more Covid 19 problems, basic restructuring of the economy, coming political instability, and financial crisis potentially in 2021. (check out my articles at jackrasmus.com blog for updates).

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Listen to my hour interview today, August 21, with J. Michaels on Parallax Views podcast on the current state of America’s Triple Crisis. How Covid 19, the recession, and coming US Constitutional crisis and conflict are inter-related and mutually exacerbating. Why all 3 are about to get worse. Why together they may precipitate a financial crisis in 2021.

To Listen GO TO

:

https://parallaxviews.podbean.com/e/jrasmus/

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Today’s show addresses the permanent collapse and breakdown of negotiations on an economic stimulus and a discussion of the elements of Trump’s Plan B for the November elections–the outline of which is becoming clearer by the day. Plan B: how Trump, should he lose the November election, may be planning to exploit growing political, economic and health chaos to remain in office in 2021.

To Listen to my hour long presentation

GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-trump-s-election-plan-b/

SHOW ANNOUNCEMENT

:

As Congress goes home it now appears negotiations on a stimulus plan have collapsed, not just broken off. There may be no stimulus package before the November 3 elections. Severing negotiations means Trump’s plan not to negotiate with Democrats and Congress is no longer tactical but strategic. What’s the bigger strategy behind the growing triple crisis in America: Health, Economic and Political? Dr. Rasmus speculates on the elements of Trump’s strategy for November now taking form. How it assumes a continuation of the Covid, Economic, and Constitutional confrontation with Congress. What’s the possible role of a foreign policy crisis in October in a ‘Plan B’? With a deepening Constitutional challenge with the US House of Representatives. What are some scenarios possible after November 3? (Check out Dr. Rasmus’s blog, jackrasmus.com, and his twitter posts for day to day developments, at @drjackrasmus

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By Dr, Jack Rasmus
Copyright 2020

(Author’s Note: the following is an addendum to this writer’s recently published article, “Trumps Scuttles Stimulus Negotiations-What Next?”)

Less than 24 hours after Trump broke off negotiations on the economic stimulus package with Congressional Democrat leaders, Pelosi and Shumer, last Friday August 7, Trump issued a series of Executive Orders (EOs) that he had been signaling and threatening all last week well before the break up.

Almost certainly the legal crafting of the EOs were written long before negotiations were dramatically ended by Trump’s hatchet man leading his negotiating team, staffer Mark Meadows. Trump clearly planned the break up and his EOs some time ago.

Trump, Meadows, Mnuchin and McConnell cleverly set up and sucked in Pelosi and Shumer into negotiations last week, never planning to conclude a deal by Friday, in the process getting them to reveal their priority demands and securing from them major concessions worth $1 trillion—for which the Democrat leaders apparently got nothing in return.

A day later, Trump dropped the hammer and issued his EOs, which are designed more as PR for his election campaign. They certainly won’t provide anything remotely necessary as fiscal stimulus to confront the US economy’s emerging fading rebound in recent weeks.

Upon close inspection the EOs are therefore mostly smoke and mirrors, designed to produce useful electoral soundbites for his campaign between now and November. The EOs are more PR for public relations purposes, while also serving as FUs (F*** You) to the Democrats.

EO #1: Payroll Tax Cut

The EO that has gotten the most media attention thus far is his proposal to introduce a payroll tax cut, which neither the Republicans or Democrats in Congress were calling for. Why were they not? Because they had both already agreed to an alternative measure far more lucrative for business: an expansion and extension of the ‘Retention Tax Credit’ passed in March as part of the CARES ACT stimulus. The retention tax credit has provided a direct tax cut to business worth $55 billion since March. Businesses get the tax credit by simply saying they didn’t lay off workers they might have. But any business can make that claim, even if they had no plans to lay off, and thus get the credit. In the current negotiations that were in progress until last Friday, both sides—Republicans and Democrats—had agreed to expand and extend the ‘Retention Tax Credit’ costing another $194 billion in addition to the $55 billion to date.

Another reason why even the Republicans in Congress weren’t all that interested in Trump’s Payroll Tax Cut was that Business had already been given a payroll tax cut in the CARES ACT. Payroll taxes are paid for by both employers and workers, each contributing half the total 15.3% to Social Security and Medicare. (6.2% of the payroll tax goes to social security plus another 1.45% for Medicare). Employers have already therefore had their share of the payroll tax deferred (but not yet permanently cut). Deferral means employers have to start paying it back by the end of 2021. The media hasn’t provided much attention to that. But the employer tax ‘cut’ is really a tax ‘deferral’ that has to be restored at a later date to the social security and Medicare trust funds.

Trump wants not only a deferral of the 7.65% workers’ share immediately, but also to make it permanent later. That means the trust funds will never see the money restored. And if that’s his plan for the workers’ 7.65% share, it will presumably mean the same for the employers’ 7.65% as well. That translates into an end of the social security and Medicare programs! Ending the programs means, in turn that 50 million American households would be immediately thrust into poverty. Consumption would collapse. And economic depression would almost immediately result. But no matter to Trump, so long as he can spin it for re-election purposes in the interim.

Trump administration mouthpieces have been trying desperately to ‘walk back’, as they say, Trump’s disastrous declaration to make the payroll tax cuts permanent and thus destroy social security and Medicare. Mouthpiece #1, Larry Kudlow, says he didn’t mean permanent in fact.

Trump is caught between a rock and a hard place, as they say. By deferring the payroll tax the likely response by employers, as others have pointed out, is that the employers, who are responsible for collecting the payroll tax from workers, may do so and just sit on the collected payroll taxes from their employees.

Employers by law are responsible to collect and send the taxes to the government. If they don’t collect from their workers, thus allowing them to realize a real wage increase in their paychecks equal to 7.65%, then the same employers will be liable to pay out of their own profits what they didn’t collect once the deferral period ends. Employers will have to make up the payroll tax loss in 2021—at the same time they have to pay back the deferral on their own 7.65% share by the end of 2021!

Another related problem is that should workers have their 7.65% deferred and realize a wage increase in 2020 from it, they’ll have to declare that as income and pay taxes on it come April 2021. So it won’t be a 7.65% net income gain for them either.

Apparently Trump’s gambit on the payroll tax has had even some Republican Senators choking on the stupidity of the measure. Republican Senator from Nebraska, Ben Sasse, quickly called it “unconstitutional slop”!

EO #2: $400 Supplemental Unemployment Benefits

The supplement Pandemic Unemployment Compensation program, PUC, introduced last March in the CARES ACT provided for an extra federal $600/week benefit in addition to the States’ Unemployment Benefit programs. Those state programs provide up to $450 a week (California) to as little as $235 a week (Mississippi). The $600 was designed to help unemployed stay in their rental apartments and homes. $235 a week, or about $10,000 or so a year, is grossly inadequate to keep people in their homes during the pandemic. So the $600 was added, and not just to cover household living costs but also to stimulate consumption and the economic recovery. Studies show households earning less than $25,000 who received the $600 spent it all. Other university studies show the $600 has not discouraged workers from returning to their jobs.

Trump’s EO proposes to cut the $600 to $400 a week. But not even $400. The federal government will pay $300 and the states will have to kick in the other $100. If they do not, the government $300 may not even be available, according to some sources. The $600 since March has benefited between 14m and 28m unemployed. It generated $85 billion/month in consumer spending and thus GDP to the US economy. Reducing it to $300 a week—as Trump’s EO proposes—cuts that in half, which means at least $40 billion a month will be taken out of the economy and US GDP. Some stimulus that!

And where will the finances to provide the $300/week benefit come from? It is unclear, although Trump administration mouthpieces have raised the possibility the money will be diverted from the Disaster Relief Fund’s $44 billion—i.e. just as the hurricane season arrives! But $44B will only fund the $300/week for about five weeks at most. Not to mention that transferring funds from a program authorized by Congress is also another unconstitutional action—just as is Trump’s payroll tax cut proposal. It too is just another indication of Trump’s intention to run roughshod over any constitutional requirement that gives authority to Congress, and especially the US House of Representatives.

EO#3: Moratorium on Evictions

There are 108 million Americans living in approximately 48 million rental units in the US. The CARES ACT of last March provided for evictions moratorium in only about one third that total, specifically in apartments subject to federal housing finance programs. So evictions have been continuing ever since the pandemic and great recession began. But they have begun accelerating in July as even the limited moratorium expired on July 25. Estimates are that 12.5 million are potential evictions in the federal covered programs–11 million of which in 2020. Other estimates of potential evictions rise to as much as 30 million plus.

Trump’s eviction moratorium Executive Order does not prohibit evictions at all. It just says states should “consider” suspending or limiting evictions. This particular EO is just typical Trump smoke and mirrors, allowing him to say something in his tweets and public appearances that he’s stopped the evictions. In this case, the EO is just normal Trump BS.

EO#4: Student Loan Deferral

Whereas the March CARES ACT provided for the suspension of student loan payments and zero interest accrual through September 30, 2020. Trump’s EO merely extends it up to the end of December 2020. Or possibly earlier, since the EO states: “It is therefore appropriate to extend this policy until such time that the economy has stabilized, schools have re-opened, and the crisis brought on by the COVID-19 pandemic has subsided.” What’s ‘stabilized’? How many schools must ‘reopen’ and what constitutes ‘pandemic has subsided’? In other words, there’s no guarantee even the suspension is extended through 2020.

The current crisis provides no better opportunity for the US government to simply expunge federal student loan balances and obligations. The program is a travesty. It charges students, now in debt to the tune of $1.6 trillion, interest rates as high as 6.7%. That compares to the ability of businesses to obtain 10 year equivalent loans at interest rates as low as 2% today. Why is the federal government charging millions of students such usurious interest rates? Because it wants to push them off the Dept. of Education loan system into the arms of the private banks to re-consolidate their government education loans. Banks charge now about 4% to consolidate, less than the government’s 6.7% but far more than the 2% they charge their business customers for equivalent loans. Abolishing the $1.6 trillion debt load on students will have no effect whatsoever on US government finances and US economic output. In fact, it would likely result in a major stimulus to consumption and therefore economic growth. But Trump’s EO does nothing except allow him to say he improved relief on student debt by a few weeks before the November elections.

Executive Orders & Deepening US Constitutional Crisis

While running for president before 2016 Trump continually attacked Obama for trying to legislate immigration reform by Executive Order. Now he is doing the same, expanded by magnitudes. Trump has revealed time and again plans to govern by bypassing Congress. He has cornered the Federal Judiciary. Not just the Supreme Court majority but hundreds of his ideological appointees to the Federal Judiciary at all levels are now in his pocket. He clearly believes he can abrogate Congressional legislative authority and govern by decree: executive orders as well as national emergency declarations and similar legal maneuvers no doubt already being planned by Bill Barr and Steven Miller. The current flurry of EOs should be viewed as just the latest tactics in his broader strategy. They are largely public relations measures introduced primarily with his eye on the November elections.

They are also ‘FUs’ directed at the Democrats, declaring his intent to step on them at every opportunity in the run up to the November elections. It’s as if he’s saying and taunting them: “See, I outmaneuvered you guys again. I set you up allowing my hatchet men, Meadows and McConnell, to extract concessions from you in negotiations. I let you think you could get a deal. Now I’ll announce those measures and you can agree to them or not. I’ll spin it and take the political credit. Now you can come back to the bargaining table and give me some more concessions that I’ll take credit for as well. I’m going to string you along like this until November. I’ll look like I’m doing something and you’ll look like you can’t get anything done”.

A Trump De Facto Coup Scenario

Trump will never accede to the results of the upcoming November elections, should he lose. His strategy becomes increasingly evident with every passing week and action. The EOs are just the latest event in that strategy.

The mostly likely scenario for November is his plan to declare on November 4 that the voting has been tampered with as a result of mail ballots and the US post office refusing to process and mail millions of ballots. He’ll declare the November results null and void, and declare the US Supreme Court should decide in his favor for a second term—just as it did (unconstitutionally) in 2000 when the Court stopped the voting count in Florida. This time he’ll challenge the voting count in every state he’ll lose, but not in those he’ll win.That’s why he’s recently said mail in ballots are OK in Florida but a problem elsewhere.

It is not beyond the possible he’ll also call for his radical right, gun-toting friends to come to Washington to surround and protect the White House while the crisis intensifies in December-January. His DHS troops and ICE cops are also available to provide physical protection. Democrats in Congress will rant and rail about it all, but have no executive force to stop him or drag him out of the White House in January when he refuses to leave. Nor will the Washington DC police, or FBI, or US military units want to confront a White House surrounded by his armed supporters. As time drags on, his position will become stronger.

Make no mistake. This is not an impossible scenario. Democrats and moderates think he cannot thus flout the US Constitution and law. Yes he can. And he likely will.

Dr. Jack Rasmus August 9, 2020

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com. His twitter handle is @drjackrasmus.

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By Dr. Jack Rasmus
August 7, 2020

Today, August 7, 2020 negotiations on an economic stimulus package between US House Democrats and the White House broke down and broke off. What’s behind it?

In recent days the Democrats’ leaders, Nancy Pelosi and Chuck Shumer, reportedly reduced the cost of their original ‘Heroes Act’ proposals by $1 trillion. Instead of the original cost of $3T in the Heroes Act passed last June, they were willing to agree to a reduced package of $2 trillion. Never mind the attempt to reach a compromise on some middle ground. The White House, Thru his assigned negotiator, staffer Mark Meadows, Trump rejected the Dems offer.

Meadows reportedly slammed the table (a two-bit amateur negotiating tactic) and walked out of negotiations with Pelosi-Shumer in a huff. Meadows’ walkout appears a well planned set up in the works for some time.

What does this mean? Politically and for the economy, now showing clear signs of the mild rebound of May-June dissipating in recent weeks?

On one level it’s clearly a typical Trump negotiating tactic: Bring a deal to a near close, then make a big show and angrily walk away. Trump’s done that before on numerous occasions. We saw it in the trade negotiations with China in 2018 and again 2019. It didn’t work then with the Chinese trade negotiators, and will likely not work here again—assuming the Dems don’t lose their backbone and fall for the set up, which has been known to happen in the past.

Trump coyly stayed on the sidelines in the early phase of the negotiations between the Dems and McConnell in the Senate and Mnuchin at Treasury.

He let McConnell in the Senate carry the early bargaining water. But McConnell’s extreme ideologue wing, led by Rand Paul and others, revolted. They said they couldn’t support any kind of new stimulus because of its impact on the government’s deficit and debt. However, this same Rand Paul-led crew in just one day last week quickly approved a record $760B Pentagon spending bill. Nor did these same folks have any problem approving tax cuts worth $5 trillion in the past two years under Trump. Nothing said about that impact on the budget and national debt.

And its these same hypocrites in the Senate who have been arguing the $600/wk. unemployment benefits for workers under the March 2020 Cares Act were ‘too generous’. The benefit was keeping workers from returning to work, although at least a half dozen university studies—from Harvard, Yale and Princeton—concluded it’s not so.

McConnell’s withdrawal to the sidelines in negotiations in early July—allowing Trump, Meadows and Mnuchin to take the lead in negotiations on the stimulus—may be part of the Republican strategy as well. UP until recent weeks, McConnell and Mnuchin were respectively playing ‘hard cop’ and ‘soft cop’ with Pelosi-Shumer. McConnell wouldn’t budge, which let the Dems pursue compromise with Mnuchin as lead for the Trump negotiations. Mnuchin and the Dems actually made some headway and some compromises. Mnuchin sucked them in, getting them to reduce their original Heroes Act $3T proposals to $2T. They were being set up.

Then Mark Meadows, Trump’s hatched man, joined in taking over the negotiations and played hard cop to Mnuchin’s soft cop. Now Meadows broke off discussions and stomped out today, August 7. The tactic is transparently designed to get the Dems to reduce their position even further. Propose more than the $1 trillion concessions already made this past week as the cost of getting Meadows to return to the bargaining table. If they do, it makes Trump look tough and in control of the negotiations agenda. And if they don’t, then Trump moves on to legislative by executive action—which also puts him in the appearance of control and the sole person producing the stimulus package.

Trump also wants to put his ‘mark’ on the negotiations, as is always the case. He wants it to look like the parties couldn’t come together, but he was able to hammer out a deal. ‘The Art of the Deal’, right?

And there’s another more insidious objective here. Trump’s been signaling for weeks he’d like to inject his own pet demands and is ready to do so by executive order once again if necessary. He wants to legislate by executive order. He pulled it off before, setting a precedent. That was when he spent money for his wall by shifting it from the Defense Dept., prepared to restore the diverted funds back to the Defense Dept. at a later date. Republican proposals on the table, by the way, provide another $29 billion for the Pentagon—over and above the just awarded Pentagon spending of $760 billion. Now he’ll make a similar move: he’ll divert funds by executive action to pay for his new tax cuts and other measures taking money from some other pot, present or future, to pay for it. Dems in Congress will be left standing saying ‘hey, you can’t do that’, but it’ll already be done.

Breaking off negotiations now gives Trump the opportunity to introduce his proposals by executive order. To do so is clearly unconstitutional but that means nothing to Trump. He’ll soon announce his own stimulus proposals and start executive orders implementation . He’ll use that fait accompli to force the Dems to agree to them if they want to be part of any final stimulus deal. And if they don’t,” so what” he’ll say. “They couldn’t get it passed. I did.”

But as the failure to pass a new fiscal stimulus drags on, 14 million workers will lose their supplemental $600/wk. unemployment benefits. That’s roughly $85 billion a month taken out of US GDP, in reduced household consumption. Failure to pass a stimulus also means that 12.3 million renters will be evicted before November, according to the most conservative survey. Some surveys estimate as many as 28 million will be evicted. And no more money for state and local governments facing a growing fiscal crisis that will soon require them to start mass layoffs in September.

The McConnell-Trump strategy is not to bail out state and local governments. It’s about making the high urban population centers—located largely in ‘blue’ states—to bear the brunt of the continuing economic crisis. If they need more money, let them go to the municipal bond market and borrow more. It’s a blue state problem, they argue. Let them sink with it is the Republican view. Or else cut their too generous public employee benefits and pensions.

To sum up, the strategic objectives behind Trump’s ordering his man, Meadows, to break off negotiations are several: inject Trump to the center of the negotiations in the last phase of bargaining so he can take credit for any subsequent deal. Second, allow Trump to raise his pet proposals—like making the payroll tax cut permanent—to the top of the bargaining agenda with the Dems. Third, let McConnell off the hook and avoid creating a split within his Republican ranks over deficits in order to forge a deal. Fourth, expand Trump’s attack on the legislative and purse strings authority of the US House of Representatives, and thereby push the presidency toward usurping legislative authority still further than it already has.

Trump is not only a tyrant—i.e. someone who sees himself above the law—as witnessed by his recent pardons and his own numerous public statements about himself as president; he is also a classic usurper, attempting to shift legislative authority via executive action from Congress to himself; and he is also moving toward rule by decree—aka a dictator—which is a hallmark of all authoritarian and would-be fascist rulers.

And we should watch out for more ‘rule by decree’ attempts in coming months as he invokes one or more ‘national emergency declarations’ to deal with America’s current triple crises—political as well as economic and health.
With Trump forcing a break-up of the recent fiscal stimulus negotiations, and his to be announced executive orders, the political-constitutional and economic crises in America are becoming increasingly entangled. It almost seems as if Trump’s grand strategy may be to exacerbate the deepening crises as much as possible before November 3, in order to create a pretext for him to declare the election void and challenge the results.

Dr. Jack Rasmus
August 7, 2020

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How is it that weekly unemployment benefits filings have topped 2m for 20 consecutive weeks now, but US Labor Dept. monthly job reports show 9.2 million total new jobs created from May thru July? How is it that 31 million are still collecting unemployment benefits but the official US govt unemployment rate has fallen to only 10% (roughly 15m out of a labor force of 150m)?

Listen to my most recent brief 15 min. radio interviews on the condition of jobs, unemployment benefits, and Congressional lack of action.

GO TO:

https://www.spreaker.com/user/radiosputnik/jobless-report-shows-a-million-plus-unem

OR TO:

https://www.spreaker.com/episode/40064612

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Dr. Jack Rasmus
Copyright 2020

This past week US economy collapsed in the 2nd quarter by 32.9% at annual rate and nearly 10% just for the April-June period. Never before in modern US history—not even in the worse quarters of the 1930s great depression—has the US economy contracted so quickly and so deeply!

All the major private sectors of the US economy—Consumption, Business Investment, Exports & Imports—collapsed in ranges from -30% to -40% in the April-June period. That followed first quarter prior declines in single digits as well. More than $2 trillion in real economic activity was wiped from the economy. Consumption collapsed by more than -1.5 trillion. Business investment by nearly -$600 billion. Ditto net trade and even state & local government spending.

Even more foreboding is that the April-June collapse came as the economy opened up in June virtually everywhere and in many states even before in May. So the 2nd quarter collapse—as deep as unprecedented as it was—reflects a rebound of economic activity during the last six weeks of the quarter.

More worrisome still, even the weak May-June rebound has begun showing signs of stalling out as of mid-July, according to latest economic indicators.

Fading 3rd Quarter US Economy

Here’s some emerging evidence of that stall-out now beginning:

• Jobs Deteriorating Once Again

Weekly initial unemployment claims began to rise after mid-July. The numbers of new jobless claims are now consistently in the 2.2m-2.4m per week range as the economy enters August. Officially more than 32m are now collecting benefits. Millions more are still trying, or running out of them. Add to that the more than 5 million more workers who simply dropped out of the labor force since February. They’re not even calculated in the unemployment rate, according to official US government practices. So there’s easily 40m jobless out there in America—a number that’s remained pretty constant for months now. 40m unemployed is roughly a 25% unemployment rate, same as that during the worst of the 1930s great depression.

On Friday, August 7 the US Labor Dept. will report jobs and unemployment numbers for July. The reported consensus among economists is that it will likely show only 1.6m new jobs created, according to a survey reported by Reuters—a sharp slowdown after June’s numbers showed 4.8m. But 3 million of June’s new jobs represented workers returning to restaurants, hospitality, and retail work as the economy was reopened (prematurely) in May-June. Now, as the Covid virus has surged again in July, many of those 3 million who returned to work in May-June are being re-laid off in July or returning to sheltering as 30 states have again re-initiated partial shutdowns.

In addition to the Covid surge effect on jobs, scores of large companies have, independently of the virus effect, begun announcing mass layoffs by the thousands and tens of thousands. They have determined the economy’s situation is far worse than reported by the media or Trump administration and are planning for a long recession. Their layoffs will be mostly permanent due to long term restructuring.

If the 32m now collecting jobless benefits, plus those waiting to still get them, plus those who gave up and dropped out of work altogether equal 25% unemployment, how is it then that the US government keeps saying unemployment is only 11.1%?

It’s because that 11.1% is a cherry-picked low ball number for public consumption that conveniently represents only full time workers unemployment. If part timers laid off were included, even per the government’s own figures that’s 18%. Those numbers also don’t accurately count those who left the labor force or reflect the number of ‘gig’ jobs that are picked up as part of the 25% unemployed in the unemployment benefits numbers.

Another indicator of the renewed deterioration of the labor markets is the number of job openings reported by the government. That too has begun to trend down once again after mid- July just as the unemployment benefits claims began to rise in tandem.

• US Manufacturing & Construction Stagnant At Best

Manufacturing and construction account for roughly 20% of the US economy and GDP. The spin since the US economic reopening began late May has been all sectors of the economy have been bouncing back—services, manufacturing, construction. Facts show otherwise.

In Manufacturing jobs have continued to decline every month, according to Purchasing Managers Indexes (PMI) More companies continued to lay off workers in manufacturing than hire them during May-June. Manufacturing output continued to contract through June, with a reading of 49.8 (less than 50 indicates contraction). That rose to 51.3 in first half of July, but contracted again at the close of July finishing the month of July essentially stagnant at 50.9, according to the business research firm, HIS Markit.

The condition was roughly the same for construction. Per the US Commerce Dept., construction activity continued to decline by -1.7% in May and another -0.7% in June during the period of the economy’s reopening.

So with services’ industries and occupations re-shutting down in July once again, and with Manufacturing and Construction, stagnating at best—by end of July 2020 the US is teetering on the edge of faltering and ending the brief, weak and tentative economic rebound of late May to early July.

• Household Income & Consumption in Trouble

Consumption spending by households represents 70% of the US economy and GDP. The main determinant of household spending for the more than 100 million US working/middle class households is their wage income or, for working class retiree households, their pensions, social security benefits, & other income. Household income for tens of millions is now in a precarious state and is being reflected in reduced spending already.

According to a US Census Bureau report in July, 22% of households report that they now, as of July, can’t make their rent or mortgage payments. There are roughly 70 million renting households in the US. That’s more than 15 million US households and more than 30 million Americans!

According to Urban Institute research, it will cost $7.3B a month to keep renters and homeowners in their homes. That’s a little more than $50B for the next six months. But Republicans—Mnuchin, McConnell & Trump—all adamantly refuse to provide any of the $7.3B assistance. On the other hand, they quickly approved roughly $20B in the March Cares Act for Defense corps making billions in profits, passed the $760B in new money for the Pentagon in one day last week, and now propose another $30B for their Pentagon-Defense Corp. friends in their HEALsAct stimulus proposal announced in July.

Apart from the $760B new record Pentagon budget just passed in the blink of a political eye, that’s roughly $50B in new money for the Pentagon instead of $50B to keep tens of millions of working class households in their homes for another six months!

Already evictions of renters and foreclosures of homeowners are rising fast. It’s something of a myth that even the Cares Act of last March introduced a moratorium on rent evictions. First of all, that addressed only one third of the available rents—i.e. those backed by US government financing. Two-thirds have always been exempt. Even the one-third was not enforceable, moreover. Many areas of the US have continued with evictions throughout the pandemic period.

And now evictions are accelerating even faster in July, now that the Cares Act measure expired on July 25. No fewer than 12.3 million renters covered by the Cares Act lost their moratorium late July. That evictions acceleration, now underway, has resulted in reduced spending and consumption since mid-July and will no doubt depress spending even more into August and beyond.

In addition to the Housing crisis depressing income and consumer spending, there’s the parallel crisis of more than 15 million newly unemployed having no medical insurance. Studies show clearly those without insurance tend to spend less to save for medical expenses. A Commonwealth Health Care Fund survey in late June found that 21% of workers laid off lost all health insurance coverage from their employer and all sources during layoff since March. That means at least 8 million additional US households without health insurance since March. 8 million more—and rising as new unemployment claims also rise—who will spend less and compress consumption further and therefore US GDP in 3rd quarter.

Yet another major factor portends a slowing of household spending and consumption, further dampening any economic rebound: Congress’s reduction of unemployment benefits.

Debate is now intensifying in Congress on the scope and magnitude of a so-called ‘5th stimulus’ legislative package. At the heart of the debate is whether to continue the $600/week federal supplemental unemployment benefits instituted last March under the Cares Act. The cost of the $600/wk. benefit was estimated in March at $340 billion, for a period of four months. Were the $600 eliminated altogether, it would thus take roughly $85B a month out of the US economy.

Republicans in the Senate have proposed an immediate reduction of the $600 benefit to $200. Hidden in the proposal is a further reduction after two months at $200, by integrating the federal benefit with state unemployment benefits and capping both at $500. So at least 3/4s of the $600 would end, taking nearly $65B a month in spending out of the economy starting in August and for however long the benefit continue.

It is not surprising given the rising unemployment claims, pending evictions, growing ranks of health uninsured, and prospects of ending significant unemployment benefits—not to mention the resurge of the virus and growing partial re-shutdowns across dozens of states—that household consumer confidence shows evidence of fading in July as well. University of Michigan’s survey—considered the gold standard of the confidence research—recently reported that consumers’ expectations for the US economy over the next six months continue to slip further. In March 2020 the overall index fell to only 72.5, a historic low (>100 means positive; <100 means failing confidence). That remained at 73.2 in June despite the economy reopening. The next six months expectations index in June was 72.3 but by mid-July had deeply contracted further to only 65.9. Clearly, consumers are not optimistic where the economy is about to go and, to the extent their expectations affect their spending, the latter is not likely to recover soon.

In short, escalating housing evictions, more loss of health insurance coverage, and reduction of weekly unemployment benefits for tens of millions of Americans and households can only further significantly depress household consumption—70% of the economy—and thus undermine the already weak and fading May-June economic rebound.

Fading US Economic Rebound in Historical Perspective

During the depths of the crash in March-April, Trump, his administration spokespersons, much of the mainstream media, and many economists were predicting the crash would soon produce a just as rapid snap back of the economy beginning in June. That was called the ‘V-Shape’ recovery.

But recoveries are sustained, whereas ‘rebounds’ are not. This writer was publicly predicting last March the V-shape prediction was a fiction. At best, the trajectory of the US economy would prove to be ‘W-Shape’—as have all great recessions of which the current contraction has proven to be among the more severe. (Other ‘great recessions’ have occurred the last century in 1908-13, 1929-30, and 2008-11. None were V-shape. All were to some degree ‘W-shape’. And in one case, the ‘W’ transformed into an extended ‘U’ and the great depression of the 1930s.

W-shape trajectories are typical of great recessions. W-shape means a deep initial contraction of the economy is followed by a weak rebound, which then dissipates and produces a subsequent economic relapse in terms of growth and GDP. The relapse may take the form of a dramatic slowdown in the rebound or in the economic growth rate totally stalling out and economic stagnation occur next quarter. Or, yet a third possibility is that the relapse may prove even more severe and result in a renewed contraction once again—i.e. a double dip recession. In a W-shape typical great recession trajectory, the stagnation or double dip is in turn followed by another brief and weak ‘rebound’. And that rebound followed by yet another relapse. Triple dips are not impossible. That’s what happened to Japan after 2008 and almost to Europe as well after 2014.

This ‘bouncing along the bottom’ trajectory following the deep initial crash may go on for months and years—as was the case in the US after 1908 and again after 2009 as well.

Or, alternatively, the stagnation or further economic contractions may lead to a subsequent financial and banking crash that drives the economy even deeper, ratchet-like, to become a de facto economic depression. That was the case after 1930.

What’s happened to date in the US, from early March through July 2020, shows the US economy has clearly fallen into a great recession again–and this time three times deeper than in 2008-09 and in one third less the time!

It is unprecedented. And it represents totally new territory that mainstream economists have no analog experience from which to speculate as to its medium and longer term trajectory into 2021. Indeed, the mainstream economics community has no clue. They are content, as they typically are won’t to be, with predicting the present instead of the future—although very few now bother to say it’s a V-shape recovery. Only the polyannas in the Trump administration still adhere to that nonsense and that fiction.

The first phase of the 2020 Great Recession has passed. That was the deep and rapid contraction of 10% (32.9% annualized). The second phase began with the weak June rebound that continued into early July. The question now is whether that weak rebound will transform into a relapse in the form of a rapid slowing of the economy once again—i.e. a third phase. Or perhaps just a second phase, with the weak rebound of May-June representing a juncture or transition between phases.

Beyond the coming 3rd quarter the central question is whether the US economy will experience yet another weak, short and shallow economic rebound? If so, the W-shape trajectory of the current Great Recession 2.0 will be further confirmed. Another possibility is the contraction will even out and settle into a longer term stagnation. Yet a third outcome is further shocks to the economy will drive it into yet another sharp and deep contraction.

There are three possible ‘drivers’ that would result in the latter outcome: a failure of Congress and policy makers to introduce a sufficient fiscal stimulus directed at household consumption stimulus; a major political and constitutional crisis occurring surrounding the November 3 national presidential elections; or a chain reaction contagion in financial markets provoked by spreading business defaults and bankruptcies—either in the US or abroad.

The nation should know fairly shortly whether Congress—driven by Republican and conservative-radical ideologues—fails to pass sufficient fiscal stimulus as the economy fades in the 3rd quarter.

The second outcome is becoming increasingly likely by the day. Trump clearly has no intention of leaving office by normal processes. A close electoral college vote will further ensure a political crisis in the US of dimensions never before experienced. The economic consequences will prove severe. Those possible scenarios will be described shortly in another article.

Third, although a major financial instability event is not yet imminent, the longer the W-shape great recession trajectory continues, the more likely such an instability event becomes. Moreover, when it does, it will appear swiftly, unexpectedly, and no less severely in terms of its impact on the real economy of households, workers, and even businesses in general.

Dr. Jack Rasmus
August 3, 2020

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