The economic headlines have headed in different, if not opposite, directions in recent days. All are newsworthy, although at least one is not novel: Monday's confirmation from the National Bureau of Economic Research that in February the U.S. entered a recession.
Just hours later, Wall Street's closing bell signaled that the S&P 500, which had risen 44% since its mid-March low, had erased all of its 2020 losses. (Until Thursday, that is, when in reckoning with realism on COVID-19 and Fed Chair Jerome Powell's downbeat economic analysis, it fell 5.9%).
The previous rally reflected the different dynamics driving investors, including a surprisingly strong May report that said about 2.5 million jobs had been added since April, dropping the unemployment rate to 13.3% — still the highest since the Great Depression, but not at depression levels.
But to compound the contradictory trends, the report contained a "misclassification error" that noted that the jobless rate was strikingly higher for the last two months. In fact, if calculated accurately, the Bureau of Labor Statistics (BLS) noted, "the overall unemployment rate would have been 3 percentage points higher than reported," or about 16.3% for May and 19.7% for April.
President Donald Trump, reeling in his re-election race, touted the report, leading to speculation that the administration manipulated the figures. That didn't happen. "You can discount the possibility that Trump got to the BLS," Jason Furman, chair of the Council of Economic Advisers under former President Barack Obama, said in a tweet. "Not 98% discount, not 99.9% discount, but 100% discount. BLS has 2,400 career staff of enormous integrity and one political appointee with no scope to change the number."
Integrity does not mean immunity from mistakes. BLS officials blamed the error on how workers were classified during the pandemic.
Understanding the error matters for many reasons, and resonates beyond Wall Street. Main Street needs to be able to anticipate demand as it struggles to keep businesses viable. And on both ends of Pennsylvania Avenue, it's imperative that Congress and the White House are aware of the extent of the extraordinary dislocation the quarantines have caused.
Republican senators are reportedly cool on extending benefits beyond July, when most of them expire. The Trump administration seems uncertain, too. Meanwhile, the Democratic-majority in the House has passed the HEROES Act, a $3.5 trillion bill to extend many of the previous pandemic-related aid packages. That includes cash-starved states and municipalities, which may have to lay off scores more workers without aid.
Negotiations are normal in any expenditure, especially one with such a price tag. But it must be remembered that one of the reasons the true unemployment rate isn't yet at Great Depression levels is because the federal government, on a bipartisan basis, acted fast to avoid a complete coronavirus collapse.
"We've never had such a rapid increase" in joblessness, Gary Burtless, a labor economist and senior fellow at the Brookings Institution, told an editorial writer — even before a Thursday report that more than 1.5 million people filed for unemployment last week. Government action "averted a humanitarian disaster which would have happened if they didn't have a replacement income."
An economic and health disaster still looms, at least worldwide, as evidenced by two other sobering headlines from Monday. The first comes courtesy of the World Bank: A "swift and massive shock," it reported, has led to the broadest economic collapse in 150 years. And the World Health Organization reported a new daily record of COVID-19 cases on Sunday.
The global contraction will influence America's economy even if there's continued progress on jobs. Fortunately, the U.S. has the ability to blunt the worst of the pain through extensive, albeit expensive, government spending. It should not make the problem worse by pausing its efforts.