The Bureau of Labor Statistics just released the jobs report for the month of August. For the fourth consecutive month, the economy added more than 1 million jobs, an unprecedented record. The actual number of jobs created was 1.4 million. This indicates the sharp V-shaped recovery is continuing even faster than the most optimistic economists had forecasted.
In January and February of 2020, the economy looked very strong. In fact, it appeared that economic growth would exceed 3% for the year and perhaps approach 4%; a number not seen since the year 2000. But then the Coronavirus hit and the economy shut down.
Immediately the economy went into recession. The drop in output was so great in March, that even with a strong January and February, GDP declined at a 5% rate for the quarter. In April, the economy came to a virtual standstill. But in May the economy began to re-open.
The question was always about just how fast the economy would recover.
Starting on May 1, it looked like the recovery would be V-shaped, meaning that the economy would bounce back very quickly, rather than a slow drawn out recovery like the one after the 2008-2009 recession.
The data showed a whopping 2.8 million jobs added in May, about double the previous monthly record. In June things got better. About 4.6 million jobs were added in June, almost doubling the record set in May. Other indicators also confirmed a V-shaped recovery.
In July, 1.8 million jobs were added, as the economy continued to rebound. And the 1.4 million jobs added in August confirms the speed of the recovery. By the end of August the economy added a total of 10.6 million jobs over a four-month period. That means in four months, nearly half of the jobs lost had been recovered.
The unemployment rate fell from 14.7% in April to 8.4% in August. That’s a 6.3% decrease in the unemployment rate in four months. This is unprecedented.
To be fair, the economy still has a long way to go to get back to where we were prior to the recession. But the speed of the V-shaped recovery indicates this is the fastest recovery from a deep recession ever. It is possible, depending on a number of factors related to the control of the virus, that by the end of 2021, nearly all of the jobs lost during the recession will have been recovered.
As long as government policy encourages economic growth, rather than concentrating on curing perceived social injustices, the recovery and eventual expansion will be very robust. That’s why this presidential election is so important.
Trump’s policies will likely encourage growth by continuing to reduce burdensome and counter-productive regulations, by keep tax rates low and by encouraging individual freedom and individual responsibility.
Experts say that the Democratic Party candidate for president, Joe Biden would put in place policies that will slow growth. This is exactly what happened in 2009. Obama/Biden vastly increased regulations, passed the Affordable Care Act (ACA) which had 21 new or increased taxes and encouraged social responsibility.
The result was the worst recovery from a recession ever.
But some argue that Obama/Biden created more jobs in the last three years of their administration than Trump did in the first three years of his administration. That is true, but the jobs created by Obama/Biden were low-quality jobs. Here is what happened:
By 2015, the provisions in the ACA said that any employer with at least 50 employees must pay for health insurance for each worker or pay a $3,000 fine. A full-time worker was defined as working at least 30 hours per week. Many retail and service industry employers reacted in such a way as to create more low paying jobs.
In other words, suppose a firm had 5 workers employed for 40 hours per week prior to the ACA provision. After 2015, to avoid paying health insurance costs, the firm reduced the number of hours for the five workers to 25 and then hired 3 more workers for 25 hours. They ended up with 8 employees working 25 hours (200 hours in total). Prior to the ACA, they had 5 employees working 40 hours (again 200 hours in total).
So they added three more part-time employees. But the five original workers lost hours, forcing many to look for a second part-time job. That’s how more jobs were created in the last three years of the Obama/Biden administration.
Trump’s recovery is fast and very strong. While there are headwinds that could slow the recovery, as long as we stay the course things will be back to normal very quickly.