Brown on Business

June 29 - July 5, 2020

By Wesley Brown
wesley@dailydata.com

Health of U.S. job market floats all economic boats

As the world’s largest economy tries to awaken out its coronavirus-induced stupor, many experts now say the key to getting the wheels of commerce smoothly spinning again is getting nearly 50 million jobless Americans back to work.

In the U.S. unemployment report released on June 19, the damage that shelter-in-place and social distancing mandates has inflicted on the U.S. job market is now trickling down to almost every single household activity. In fact, recent economic reports show that high unemployment is not worsening food insecurity, homelessness and hunger but also causing a spike in late rent and mortgage payments and delayed decisions on big ticket items like cars, overseas travel, family vacations.

Nationwide, all 50 states and the District of Columbia in May had jobless rate spikes from a year ago, according to the U.S Bureau of Labor Statistics (BLS). If there is one bit of good news that can be drawn from the monthly job report, it would be that the national unemployment rate declined by 1.4 percentage points over the month to 13.3%. Still, that is a whopping 9.7 points higher than a year ago when the Trump administration proudly touted a near record jobless rate of only 3.6%.

To put that data in perspective, there were only 5.9 million unemployed workers in the nation’s 258.6 million-person civilian workforce in May 2019. Today, that number stands at a tidy 21 million, down by 2.1 million in April. Altogether, there were 45.7 million workers in Arkansas and across the U.S., respectively, that have filed jobless claims during the pandemic.

And although that number is starting to slow, the four-week moving average for jobless claims still averages nearly 1.8 million per week. Highly cited economist Gad Levanon, head of The Conference Board’s Labor Markets Institute, offered this view on the job market in the coming weeks and months.

“The number of workers returning to work is larger than the number of new layoffs. That was the case in May and will likely be the case moving forward. Just to put things in perspective, the job gains in May recouped just 11% of the jobs lost in March and April,” said Levanon. “Just how much consumers will increase their spending – and how many new workers employers are willing to hire during such uncertain times – remains to be seen. 

“Also, layoffs are far from over,” the Conference Board economist warning, noting that many HR executives at large companies plan on furloughing more workers in the coming months. “By the end of 2020, the employment level in the US may still be 10 million below where it stood in February – a difficult time for the class of 2020 to enter the labor market,” said Levanon.

In practical terms, that means that a huge swath of the nation’s working class and fresh-out-of-college millennials are falling behind on their bills. According to real estate analytics firm Zillow, more than $1.7 billion in rent and mortgage payments is owed each month by a growing number of U.S. workers currently receiving unemployment benefits.

The same report, released on June 17, shows that the biggest impact of this trend is being felt by younger service-sector workers in the food, arts, entertainment, recreation and retail industries that have seen reduced operations or shut their doors completely.

About 70% of that total, or about $1.2 billion, is from newly unemployed renters that have lost jobs during the pandemic. Although safety nets such as unemployment benefits, recent CARES Act stimulus checks and rent deferrals have been put in place, a large share of housing payments could be missed eventually if government assistance expires or jobs don’t return to pre-pandemic levels, said Zillow’s Senior Principal Economist Skylar Olsen.

“As we’re watching resilient buyers return to the for-sale market and more renters able to pay on time in May than in April, it’s important to remember that much of the confidence that led to that improvement rests on massive government aid,” said Olsen of the $2.2 trillion CARES Act. “By supporting the more than 40 million Americans who have filed for unemployment benefits, that package is not only easing financial hardships but also safeguarding the housing market from widespread evictions and foreclosures that could have devastating effects. 

Still, Olsen warned: “That safety net has an end date, so if employment does not bounce back as hoped this summer the housing recovery could be impeded, especially for renters who aren’t insulated by the equity owners hold in their homes.”

Just as ominous as struggling workers falling behind on their rent payments because of skyrocketing unemployment is that same trend as prompted more than 2.7 million young adults to move back in with their parents. Zillow’s recent analysis shows that the number of adults living in a parent’s or grandparent’s home grew by more than 2.7 million in March and April, nearly triple the next-largest two-month increase from the past five years. 

A large majority of those who moved back home – about 2.2 million – are from the so-called Generation Z between 18 and 25 years old. Those Gen Zers just entering the marketplace represent an estimated $726 million in rent payments each month, Zillow noted.

“The share of adults living with their parents has been high since the global financial crisis of the aughts,” said Olsen. “Then, it was millennials flocking to the basements and spare bedrooms of their Baby Boomer parents, where many remained as rent burdens grew. Now, it is Gen Z’s turn to ride out today’s crisis amid massive unemployment. 

But Gen Zers moving back home are also finding that many of their Baby Boomer parents are struggling to ends meet too. Zillow’s rival, Jacksonville, Fla., -based real estate analytics firm Black Knight Inc., said on Monday (June 22) that 723,000 homeowners were past due on their mortgages in May, pushing the national delinquency rate to its highest level in 8.5 years.

There are now 4.3 million homeowners past due on their mortgages or in active foreclosure, said the Black Knight monthly report, including those in forbearance who have missed scheduled payments as part of their plans. 

The report also noted that serious delinquencies are on the rise as well, increasing by more than 50% over the past two months. For Arkansans, the troubling news is that the Natural State is among the top five states with the highest percentage of past due mortgages over 90 days at 1.78%. Fellow SEC states, Mississippi, Louisiana and Alabama, are at the top of the 90-day delinquency list at 3.08%, 2.37% and 2.04%, respectively.

Meanwhile, the reality is that even with a strong bounce back in the U.S. hiring, it may be many years before the U.S. economy recoup those millions of jobs that have been swept away during the pandemic. That most likely means that the health of the U.S. job market will take center stage over the next several months as Americans look to the 2020 presidential election in November.