A short one- where does unemployment go in the coming months

Where is unemployment going from here?

1, Employment shoot up immediately after the ease of lockdown

The end of the lockdown combined with the end of COVID unemployment benefit in the CARES Act will have many return to the workforce. The current stimulus checks to people actually increased household income and savings. They provided the right incentives for people to socially distant. However, once the order ends, the unemployment benefit is expected to normalize to a crisis (but not COVID) scenario. But the reduction of household income will boost both employment and labor participation.

2, But employment will not come back immediately in all industries

Despite the help of PPP loans, many small businesses have struggled and will not come back. The coverage on them (especially on restaurants) have been comprehensive in major news outlets. Unfortunately, restaurants are only one part of the suffering businesses. Many weaker hands in different sectors will likely face the same hard decision.

3, After the initial bounce back, employment will stay around a relatively low level because of the productivity gain

COVID remote working certainly has changed things. Namely, it has increased productivity. For example, because of the wide adoption of telehealth, instead of going to a primary care doctor, getting a referral to a specialist, getting an outpatient procedure for treatment, the patient can now do step one and two in his own home with telehealth. This will result in less employment in the healthcare sector, mostly in supporting functions.

The adoption of technology will broadly boost productivity from time-saving, outsourcing, and consolidations. Technology and capital are especially helpful at scaling, and human labor is especially bad at scaling. Therefore the number of jobs needed in the economy will decrease.

4, Risk asset buoyed by the stimulus, low rates, and the productivity gain

Despite the productivity gain, the number of employers has decreased, and for the remaining ones, the number of workers needed has decreased also. Therefore, the economy will present a bifurcated picture. On one hand, we will see a sustained high level of unemployment. On the other hand, because of the fiscal stimulus and the loose monetary policies implemented, there will be an excess of capital looking to be deployed. This will buoy asset prices.

More concretely, for people who have lost their job and whose skillset cannot be adapted in the new economy, the lifestyle and propensity to spend will be lost for a long time if not ever. For asset owners, this will present a similar post 08 opportunities where not only asset prices were appreciating due to productivity increases, but also to some degree backstopped by the central banks and the government measures.

We will likely see the post-crisis 2010–2015 repeating here. Equity and fixed income were appreciating, labor supply-demand was mismatched, and wages were stagnant.

5, Long recovery of employment numbers

It took the US economy almost 10 years to come out of the shadows of the financial crisis, for a set of similar reasons. This time it would be worse. The 08 recession is a financial one. It was led by excess capacity and fragility built up in the financial system. However, this time it would be a labor recession. The pain is concentrated in the labor force.

The unemployment numbers already painted a terrible number. As the remote economy takes a more solid hold, the reopening will usher us into a new labor market.