Depression is over but US recession has just begun

Government employment data shows a jobs crisis that penetrates deeply into the economy

A man collecting unemployment forms at a drive-through in Florida in April. Dozens of industries across the US have shed jobs over the last half-year at rates consistent with a serious downturn. PHOTO: AGENCE FRANCE-PRESSE

There is a straightforward narrative of the economy this year: The world shut down in the spring because of the coronavirus pandemic, causing an economic collapse without modern precedent. A sharp recovery began in May as businesses reopened.

That is accurate as far as it goes. But the snapback effect over the summer has masked something more worrying: We have entered a longer, slower grind that puts the economy at risk for the indefinite future.

In the details of government employment data - covering hundreds of industries - can be seen a jobs crisis that penetrates deeply into the economy. Sectors that in theory should not be much affected by the pandemic at all are showing patterns akin to a severe recession.

Business news headlines are reflecting a drumbeat of layoffs normally seen in recessions. In the last few weeks alone, oil giant Shell said it was cutting 9,000 positions, with Disney eliminating 28,000 and defence giant Raytheon, 15,000.

After shedding jobs in the spring, these sectors have brought workers back slowly, or not at all, through the summer. Some have continued cutting positions. Employment at corporate headquarters - "the management of companies and enterprises", in the official terminology - fell by 92,000 in March and April, with another 4,000 jobs lost since.

The 3.9 per cent contraction in these jobs, typically white-collar professional positions, is considerably worse than the 2.4 per cent drop during the 2008 recession.

A similar pattern is evident across dozens of industries, employing tens of millions of workers. These sectors did not endure a prolonged pandemic-induced shutdown or collapse in business. But they have shed jobs over the last half-year at rates consistent with a serious downturn.

The list is varied and includes real estate, auto dealerships, advertising and heavy construction. It even includes lorry transportation, a sector that functions as the economy's circulatory system, given its crucial role in enabling all sorts of commerce. Overall, even if you exclude the sectors directly affected by the pandemic - air transportation, arts and entertainment, hotels, restaurants, and both private and public education - the number of jobs in America was 4.6 per cent lower last month than in February.

That is not far from the 5.3 per cent contraction in total employment that took place during the entire 18 months of what is now known as the Great Recession, and around three times worse than the job losses in the 2001 recession.

Executives in these industries and analysts who study them describe two related phenomena. One is the mechanical effect of shutdowns in large swaths of the economy. But, as is often the case in recessions, the pandemic has prompted many firms to accelerate shifts that were already under way.

That implies that even as public health restrictions loosen and as vaccines get closer, the overall economy is not poised for a quick snapback to pre-pandemic levels. Rather, scarring is taking place across a much wider range of sectors than the simple narrative of shutdown versus reopening suggests.

When the economy does get back to full health, many jobs will no longer exist, and American workers will need to find other types of work - and, historically, those kinds of readjustments take time.

"We do expect there to be a new steady state, but not until 2023 or 2024," said Moody's Analytics economist Sophia Koropeckyj.

In a new report, she estimates that five million people will find it difficult to get new work after the pandemic because their old jobs have disappeared or changed significantly. "I don't think the severity of this downturn has been well understood yet."


The list of things they make at Herron Printing & Graphics is, more accurately these days, the list of things they do not make.

The company produces the branded tchotchkes and trinkets that firms give out at trade shows, which are currently not being held. It prints menus for restaurants that now require customers to pull up menus on their phones; it makes the logo-bearing notepads found on the desks in hotel rooms that are closed indefinitely. Seven months in, business is still down 90 per cent from pre-pandemic levels, said owner Randy Herron.

He has cut the staff to three employees from 12 and postponed purchases of equipment indefinitely. He is dipping into his savings to keep the business alive.

"People don't realise that if one industry is hurting, it's going to hurt several other industries that supply them and leave people without money to spend," said Mr Herron, who is also president of the National Print Owners Association.

Simply put, when you take a huge segment of the economy out of commission for months on end, the impact cannot be confined to the workers in those industries. The suppliers of hotels and restaurants suffer revenue collapses, and so on in concentric circles outward. Mr Herron, for example, said there was no chance he would be purchasing new printing equipment or software for the foreseeable future.

When the pandemic hit in the spring, sales of cars and lorries collapsed. Many auto dealers had to close entirely because of public health directives, and those that remained open saw paltry traffic. The good news for the sector is that over the summer, car and lorry sales surged.

But, despite the recovery, employment at auto dealerships last month was 7 per cent below pre-pandemic levels.

The reason: The pandemic squeezed years of change into a few months in how cars are sold, making for a less labour-intensive process that requires a smaller sales staff, said Mr Rhett Ricart, chief executive of Ricart Automotive Group in the Columbus area in the state of Ohio, which includes Ford and other dealerships.

For years, car buyers have been shifting towards doing their research online and coming to the dealership only for a test drive. Prolonged haggling over price has given way to a crisp negotiation through e-mails, and customers can generally apply for loans or get estimates of the value of a trade-in online.

"The pandemic accelerated everything," said Mr Ricart, who is also chairman of the National Automobile Dealers Association. "It has been a whole dramatic change in our total ecosystem here, as customers have been more motivated to go online." A few years ago, an average sales employee would sell 10 cars or lorries a month; now those numbers are moving to 12 or 13.

Ultimately, these shifts are essential if there is to be a dynamic, growing economy. And, in every downturn, some sectors are hit harder than others. The Great Recession started with the collapse of a housing bubble, and the 2001 downturn started with the bust of companies.

But what makes a recession a recession is that the initial economic pain, whatever its source, transmits broadly to affect nearly every industry and drive millions of people not into newer and fast-growing sectors but onto the rolls of the unemployed.

The challenge for economic policymakers is not to prevent these structural adjustments. It is to ensure that, as public health concerns wane, there is strong enough demand for goods and services across the economy that even as some jobs disappear forever, new ones are being created and the pain is short-lived.

The last two recessions were followed by "jobless recoveries" in which it took years for that process to play out.

The origins of the recession of 2020 may be different from those of the previous two downturns. But, so far, the way it is spreading from company to company, and industry to industry, looks awfully similar.



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A version of this article appeared in the print edition of The Sunday Times on October 11, 2020, with the headline Depression is over but US recession has just begun. Subscribe