Transcript: Economist Diane Swonk discusses the April jobs report with Margaret Brennan
A staggering 29 million Americans lost their livelihoods in April as the spreading coronavirus shuttered stores, factories and offices, canceled events, and brought transit around the country to a sudden stop. Payrolls fell by 20.5 million last month, leaving 23 million unemployed, the Labor Department said Friday. The nation’s unemployment rate more than tripled, soaring to 14.7% from 4.4% in March — the highest since the Great Depression.
“Face the Nation” Moderator Margaret Brennan sat down with Diane Swonk, Chief Economist at Grant Thorton for some perspective on the historic numbers.
- On global impacts of the economic bust: “What I worry about is longer term, not only is should we expect, you know, over the second half the year, a very slow and even fits and starts recovery, as you noted. But also, you know, we’re talking about different countries opening at different times, which further suppresses the overall growth of the global economy. Emerging markets, many will fail entirely. In the midst of this summer, solely contingent on tourism. Can you imagine what an island country is going to do without tourism at this point in time? And so the blow and we can’t escape that blow in the US as well. We’re part of the globe economy. What I worry about on the other side is how much smaller the economy is, much more consolidation globally and also much more disintegration,” Swonk explained.
- On what to expect for next month: “We don’t know what’s going to happen with those payroll protection plan loans that we could bring some workers back for eight weeks under the creation of those loans, because there’s there’s a lot out there and it could cover millions of workers. So that could help to give us a false sense of a reopening. The problem is, at the end of eight weeks, almost every business I’m talking to does not believe that they’re gonna have cash flow to sustain those workers. So we have yet another wave of layoffs in July, the same time that state and local governments will have to be making draconian cuts because the shortfall in their budgets. So, you know, this is really going to be a real struggle to reopen,” said Swonk.
- On any signs of hope for the U.S. economy: “The hope is always in technology. We have something other generations don’t. We’re moving in the leap. Guns and bombs in terms of finding treatments and improving our testing and hopefully getting out a critical mass of testing out there. We still need money for that. And the federal government government has the ability to do that,” said Swonk.
MARGARET BRENNAN: I’m Margaret Brennan in Washington. And today you really can only call it a gut wrenching when it comes to that jobs report. We all saw more than 20 million Americans. We have learned in the month of April lost their jobs. The unemployment rate now around 15 percent, possibly even higher, since the numbers aren’t necessarily getting registered fast enough to keep up with the number of Americans who are in economic pain right now. We want to go inside the numbers and pull apart some of these stories for you to do that. We’re going to bring in economist Diane Swonk. She’s the chief economist at Grant Thornton. Diane, always good to talk to you. I’ve known you for years, and I can’t imagine that you have ever seen anything like this in your career.
DIANE SWONK: No, this is actually the worst day of my career as an economist to sort of provide a void and to bear witness to what’s happening for these tens of millions of Americans right now. It’s simply astonishing. And I don’t know anyone who’s not been touched by this crisis in one way or another.
MARGARET BRENNAN: And we say the month of April is what this jobs report is about. But if you back up even just a few weeks, we know there are actually more than 30 million Americans who’ve been left unemployed since this virus forced us all to change our lives so dramatically. What did we learn inside those numbers? What nuggets are left to sort of inform us about what’s happening?
DIANE SWONK: Well, there’s a couple of things that are really important. You’re absolutely right. These are an undercount and there’s many reasons for that. The Bureau of Labor Statistics went to great effort to try to incorporate the loss in business formation. We already saw in the month of March to make the estimates for those small businesses that they can’t directly survey in the establishment survey. Those payroll numbers to try to capture that. But, you know, we know that the numbers accelerated in the month of April and there’s just no way to do that. The numbers that the system was never designed to capture a crisis like this, the unemployment rate at 14.7 percent, the highest since the Great Depression. Also an understatement because we lost a lot of workers that were no longer participating in the labor force or classified as unemployed. Again, that’s a residual of how we used to count the data, not for a crisis like this if you didn’t look for a job. In the five weeks covered by this particular survey, for four weeks, you were not classified as unemployed. And of course, we know there is no reason to look for a job in an economy where the economy was completely shut down. So a lot of workers literally dropped out of labor force, particularly Hispanics, women and blacks. So, you know, a disproportionate hit to those demographic groups and women in particular were the reason that the participation rate, which dropped to a 1973 low, they were the reason we had a rebound driving that rebound since 2015 coming into the labor force. We also had all those schools closed, and that meant that many people who are taking care of children, parents are taking care of children, had to pull themselves out of the labor force. And many employers we’re talking about talking with are saying the hardest nut to crack is what do they do to get their low-wage workers back who can afford child care? Nor is it available in a socially distant economy. What do they do? So there was a lot of heartbreak in these numbers. Another thing on the important on the unemployment rate, they tell us a question about whether you absent from work due to COVID19, and many of the people said they’re absent, were actually unemployed. And if you roll those numbers back in, you’re already to headline unemployment rate number of 20 percent, nibbling at 20 percent. So, you know, we know that they made great efforts to capture this. But you just said often say during the financial crisis, it was like like trying to balance yourself on a fault line. You’re constantly unstable. This has been like trying to forecast in quicksand.
MARGARET BRENNAN: Well, one of the things that stood out to me and you just pulled up that thread was the idea. And Jay Powell said this, the Federal Reserve chairman, that those who are getting hit the hardest are those who can basically least afford it the most financially vulnerable. And you brought up the fact that some of the systems are overwhelmed. They’re not even actually allowing people who need that immediate financial assistance to even get in the queue. How is this going to be resolved?
DIANE SWONK: Well, you know, they’re attempting to resolve it at the state and local level.
But some of these are such antiquated programs when they couldn’t handle the volume, the sheer volume about applicants, plus the changes in the law, they could go back and change the code to change the application. And in Illinois, many people who are self-employed won’t even get their first unemployment check until May 11. That’s still ahead of us, not behind us. And so the number of people, the millions that still have been unable that are eligible and unable to apply for unemployment insurance is very high. But you add to that that we didn’t in the CARES act, add more what we used to call food stamps funding for SNAP. And as a result, we’ve got these miles long food lines out there. People are you know, we know going into this that all to all boats to not rise with the tide, that over 40 but 40 percent of households did not have an extra 400 dollars for a 40 dollar shock. Now, you go into this and it’s been much more than a 400 dollar shock. You had the ranks of the rising, working homeless rising even as the unemployment rate was plummeting in the US. That is all laid bare by this crisis because it’s added insult to injury to those whose type whose boats did not rise with the tide and actually put some under.
MARGARET BRENNAN: Do we need to brace for this to look even worse next month?
DIANE SWONK: You know, there’s gonna be some strange things that happen next month. We don’t know what’s going to happen with those payroll protection plan loans that we could bring some workers back for eight weeks under the creation of those loans, because there’s there’s a lot out there and it could cover millions of workers. So that could help to give us a false sense of a reopening. The problem is, at the end of eight weeks, almost every business I’m talking to does not believe that they’re gonna have cash flow to sustain those workers. So we have yet another wave of layoffs in July, the same time that state and local governments will have to be making draconian cuts because the shortfall in their budgets. So, you know, this is really going to be a real struggle to reopen. And even though a lot of the unemployment that was said was temporary. People were on temporary furloughs and they think they’re going to come back. The reality is that idea that we’re not going to ramp up the economy enough over the summer with social distancing is still prevalent to be able to sustain the kind of workforce we did in the past. And many businesses will permanently shuttered.
MARGARET BRENNAN: You talked about the lack of an increase in help to the most vulnerable through food stamps. I’m wondering, what is it that economists are looking for in the months ahead from Congress? Because you’ve already heard criticism. Is that with the paycheck protection plan that it actually is better for some workers to stay on the government dole versus going back to an employer at a smaller paycheck? Or that those who would like to return to work can’t because they have kids who can’t go to school. So they have to provide child care. It seems like people are kind of trapped here.
DIANE SWONK: We really do see a vicious cycle, and that’s what’s really hard. The unemployment side of it being more generous. Remember, many of those people were working more than one job. So even though they’re making more than they could returning to one job, they’re not going to make what they did in the past. And they’re still in the hole on rent and being able to cover for food, basic eating their family. So I think that’s important. I think it was the right thing for Congress to expand the unemployment benefits, to include more workers and be more generous. They can scale that back a little bit to get some of the distortions and incentives out there. But we need to have extensions for all. Those workers are going to face continued layoffs through the summer months as the leisure and hospitality industry, those most hit hardest, the most vulnerable industries just can’t come back. And, you know, I think what’s important is you cited Jay Powell earlier, Fed Reserve chairman, has really pushed this hard through no fault of their own. This isn’t by choice that anyone is going through this. And what’s important is the virus determined this, not even the state closures, the pullback in economic activity was tremendous before we ever shot one school or closed one stay because of people’s fear of contagion. They cancel conferences, they canceled meetings, they canceled vacations. They didn’t go to restaurants. That’s the behavior that’s going to determine how we come out of this. On the other side, and even countries who have done an extraordinary job with testing and tracing, like South Korea, more targeted closings are finding it’s really hard to get people return to public places when the coronavirus is still extremely alive and contagious.
MARGARET BRENNAN: This is a global crisis on the economic front as well, as you just alluded to. Should we just expect a lot of start stop? And, you know, it’s OK to come out. No, go back home that the economy moves like that as well.
DIANE SWONK: What I worry about is longer term, not only is should we expect, you know, over the second half the year, a very slow and even fits and starts recovery, as you noted. But also, you know, we’re talking about different countries opening at different times, which further suppresses the overall growth of the global economy. Emerging markets, many will fail entirely. In the midst of this summer, solely contingent on tourism. Can you imagine what an island country is going to do without tourism at this point in time? And so the blow and we can’t escape that blow in the US as well. We’re part of the globe economy. What I worry about on the other side is how much smaller the economy is, much more consolidation globally and also much more disintegration. What I mean is not disintegrating, but dis-integration de-globalization will accelerate. This is one of the things we saw in the wake of the 1918 pandemic. The New York Fed is actually traced the rise in Nazism to, in part, the post World War One pandemic effects in Germany by municipality. Those that had the least amount of funding per-capita and the most amount of dust voted most for the Nazi party in the wake of World War One. That’s pretty stunning kind of observation to find and really goes to how much we can’t let government to get its fiscal, our fiscal leaders to get fatigued by the amount that they’re spending because the alternative is significantly worse.
MARGARET BRENNAN: While people’s livelihoods there, the social impact, the political impact cannot be really even projected at this point, we don’t know how it’s going to end in the immediate term or what the transformations will be in our society when it comes to the American workforce. What should we be anticipating? Is it a new gig economy? Does the world just look different on the other side of this for the American worker?
DIANE SWONK: Well, the world will be similar, but not the same many as the things we already saw. And trends are going to accelerate by this, like the move from bricks to clicks.
We’ve already seen many retailers that were struggling actually go under in the midst of this crisis because they were struggling in the face of the competition from online and now they’re just completely wiped out. I think that’s an important thing to watch the movement by baby boomers in the role they play in the U.S. economy. They are the most skittish. They are already saving more of their mortgage refinancing dollars prior to the COVID crisis than they ever did in the past. This was the generation that was a generation and spent like crazy. So before this, because they’re either near or in retirement, they were saving more of that savings. Banking, what they got in their mortgage restructuring. Now, you can imagine coming out of the other side of this that they’re not going to want to spend as much either, and they tend to spend more at those traditional retailers. But more broadly, there’s going to be a lot of jobs displaced, which gets to the issue of what do we do, which we’ve ignored for decades now. How do we invest in our workers to get them ready to deal with a very different economy on the other side? And we really need infrastructure investment. I mean, the financial markets are begging us to do it after adjusting for inflation. Long term interest rates are negative. That means in plus we get real returns from infrastructure investment to do that to one, create jobs, but also increase our potential instead of diminish it, as everything else is doing is really critical to be thinking about right now.
MARGARET BRENNAN: This this may sound a little trite, but is there any good news in here? Is there anything in the data that shows a reason for hope or an area of strength?
DIANE SWONK: Well, the hope is always in technology. We have something other generations don’t. We’re moving in the leap. Guns and bombs in terms of finding treatments and improving our testing and hopefully getting out a critical mass of testing out there. We still need money for that. And the federal government government has the ability to do that. This is one of the few things we do have some foresight and we know it’s gonna be a struggle to reopen. So provide more relief while we’re reopening. Use that foresight to get in front and front run these trends rather than chase them. That is a silver lining to this is the technological innovations that we’re seeing, but also the ability to anticipate the pain and blunt that pain and make more of an economy to recover from. On the other side, the last issue that I think is the silver lining is we’ve got the babe, we’ve got the millennials falling, baby boomers now dominating the labor force and Gen-z behind them. They are the most diverse generations that we’ve ever produced and the most educated generations with women out of Gen-Z, men in educational attainment. That diversity and educational attainment is hope for the future. They’ve been hit hard by two crisis’s now, certainly the millennials in particular, but they are our hope going forward. And given the demographics of them and what they’ve achieved in terms of their educational attainment. There’s something to hope for in bet on in the future.
MARGARET BRENNAN: Diane, always great talking to you. Thanks for your time. You too.