The sun is setting on yet another COVID-19 (coronavirus) summer. While the US economy has found some footing since 2020, the stability leans heavily on accommodative monetary policy in combination with unprecedented levels of fiscal spending. Debate regarding the continuation of these accommodations has taken center stage following the Jackson Hole Economic Symposium. In his address, Federal Reserve Chairman Jerome Powell emphasized that easing monetary accommodations will be a function of sustained labor market recovery and further indication of price stability. This article will provide some context on labor market conditions, by briefly analyzing the three worst performing sectors.
In the words of Mark Twain, “history never repeats itself, but it does often rhyme.” For economic policy makers, lessons of the past often influence decisions for the future.
The 2008 recession, also known as the Great Recession, is often used as a proxy for the coronavirus downturn, but comparing labor market performance between the two periods illustrates just how divergent these events are. The national unemployment rate peaked at 10.0% in October 2009 and did not recover until March 2015 nearly 6 years later. In contrast, since the 14.8% unemployment peak in April 2020, the current labor market is barreling toward recovery, decreasing at a monthly average of 6.3%.
The scale of disruption
The pandemic operating climate has highlighted sectors that will likely continue struggling to reclaim prepandemic labor market conditions. Currently, the Arts, Entertainment and Recreation sector stands as the biggest loser of 2020. According to data from the Bureau of Labor Statistics, sector employment declined 28.8% in 2020 alone, translating to nearly 700,000 job losses (latest data available).
Similarly, the Accommodation and Food Services sector lost an estimated to 3.0 million employees, reflected by total employment falling 21.1% in 2020. The Utilities sector also continues to struggle, having lost 135,000 employees, or one fifth of the entire sector workforce, in 2020.
The adaptability, or lack thereof, for these sectors can be illustrated through annual changes in wage values. Twelve out of 18 economic sectors, excluding public administration, increased wages in 2020 to incentivize employment restoration. Meanwhile, the sectors on the ‘losers’ list experienced wage value declines of 18.8%, 20.1% and 18.2% in 2020, respectively. Adapting to the pandemic climate, however, is not as simple as increasing salaries; the complications of recovery are endemic to each sector.
Sector dynamics
For the Arts, Entertainment and Recreation and Accommodation and Food Services sectors, consumer perception of health and safety remains paramount for full-scale recovery. No amount of monetary of fiscal support will generate normal consumer behavior, since this is primarily determined by perceived infection risk. This dynamic becomes even more complicated for sub-sectors that rely heavily on tourism.
The labor market picture for the Utilities sector is more a product of structural shifts from conventional energy production toward renewables, coupled with historically low energy demand amid the initial lockdown period. For the highly consolidated Utilities sector, revenue declines due to the pandemic led to substantial layoffs.
With federal extensions of unemployment benefits having expired on Labor Day, recovery in underperforming labor markets will likely become a focal point regarding whether or not the economy can withstand the inevitable weening from monetary accommodations over the coming months.
