As the health and economic impacts of the COVID crisis deepen, the world at times feels divided between extreme optimists and gloomy pessimists. What place is there for a more measured voice like Syntrinsic’s? For insight, we have called upon our friends from the Hundred Acre Woods: Tigger, Eeyore, and ultimately, Pooh.

[Scene: The Great Wood. Tigger and Eeyore having a conversation.]

Tigger:    Hey, Eeyore! Great news about unemployment!

Eeyore:   [Skeptically] What’s so great about it?

Tigger:    Didn’t you see? In May, headline unemployment improved dramatically!¹ I say, that V-shaped recovery is on the way! The economy is fine, and the stock market is just going to go up! Up! Up! [Tigger bouncing on tail]

Eeyore:   But weekly jobless claims have been terrible. Over 44 million new claims in just 12 weeks.² The United States has never seen anything like this, you over-enthusiastic tiger. Clearly the economy is grinding to a halt.

Tigger:    Those jobless claims look worse than they should because Congress has allowed all kinds of people—sole proprietors, contract employees—to file as unemployed who have never been allowed to before. In a 2018 study, the Bureau of Labor Statistics found that 15.5 million Americans or 10.1% of US workers have contingent or alternative employment. It makes things look worse than they really are, you dreary donkey.

Eeyore:   Well, that does not make the numbers less dire. Maybe it is more accurate to finally include those people. Just think about all the lost wages and how much less they have available to spend. Pew survey results show 52% of low-income adults say that they or someone in their household has lost a job or taken a pay cut due to the coronavirus outbreak, through late April. This compares to 43% of American households.³ Both numbers are just terrible.

Tigger:    Maybe you did not notice, but average wages actually improved in April! Average hourly earnings jumped 8.0% from April 2019 to April 2020.⁴

Eeyore:   Sure, if you lay-off millions of low-wage earners, it makes the average look better, as the folks at the Bureau of Labor Statistics pointed out.⁵ That’s how math works, but that’s not the right way to look at it! Even a donkey knows that. You need to read the fine print, Tigger, not just the headlines you want to read.

Tigger:    You’re one to talk about selective reading! You forgot, Eeyore, that a lot of those low-wage earners are getting good temporary benefits, some even making more during this temporary unemployment period than they were making when they were working. It is estimated that 68% of unemployed workers eligible for unemployment benefits will receive higher compensation from benefits than from working their prior job.⁶

Eeyore:   Using temporary funds to pay rent and buy food is not a long-term plan. It certainly will not kick the economy back into action. Just look at consumer spending in April! Retail sales fell 21.6% from a year ago in April⁷ while personal spending fell 16.7%.⁸ Spin all you want, Tigger, that is not good news.

Tigger:    Bah! A little ding to consumer spending is all. Nothing like the American consumer to come roaring back, just like a Tigger.

Eeyore:   Well, these early steps of the economy reopening are not very Tiggery. The economy feels more like a hesitant Piglet if you asked me.

Tigger:    Some of that consumer spending is down because a lot of people have not even received their unemployment payments yet. Since the start of the pandemic, over 40 million American have filed for unemployment, while only 20.5 million have started receiving benefits.⁹ Once those people start getting funds, that will help!

Eeyore:   Those benefits are not meant to be permanent! What is government supposed to do? Keep paying people indefinitely not to work?

Tigger:    You obviously forget that the Payroll Protection Program rewards companies for bringing people back onto the payroll, so it is no surprise things are getting better. The unemployment numbers are rough but a temporary blip, that is all.

Eeyore:   What makes you think all those people will go back to work? So many retailers and restaurants have closed permanently. And the travel and leisure industry is a mess. The number of US travelers going through TSA checkpoints at airports is down 86.1% from a year ago.¹⁰ You are being naïve if you think that the economy is just going to pop right back. It is obvious that we are going to see a permanent drop in the labor participation rate, just like after the Great Financial Crisis.

Tigger:    And you call yourself an analyst! You forget that labor participation had been dropping well before the Great Financial Crisis because of the Baby Boomers aging out of the workforce. Labor participation has been holding steady since 2013 at 62.5 – 63.5%. Other than a short-term blip this year and next, it is likely to stay in those low 60s in the decade ahead. Remember all those Millennials entering the workforce? There are more of them than Baby Boomers anyway. This economy is bouncing back just like a Tigger!

Eeyore:   Oh, no. You are so simple! Anyone investing in the markets when we are in a recession and with tens of millions of newly unemployed is a fool! Obviously, the system is broken, and…

[Winnie the Pooh walks in]

Pooh:      Hello, Tigger. Hello, Eeyore. Did you say something is broken? Not a honey pot, I hope.  

Eeyore:   The economy, the stock market, the job market, all of it. Broken.

Pooh:      Oh. That sounds bad. Are they all the same then?

Eeyore:   Well, no.

Pooh:      But they are all broken?

Eeyore:   [Sheepishly] Well, not exactly. I mean the stock market seems okay anyway. And the bond market has been improving.

Tigger:    And the banks are stable, too! Hah! I told you everything is fine!

Pooh:      But, Tigger, that does not make sense. I thought that there was a pandemic.

Tigger:    [Looking at his feet] Well, I mean, yes. That is true, Pooh. There is this pandemic.

Pooh:      And many people who want to work or need to work have lost their jobs. Tens of millions, yes?

Tigger:    Well, uh, yes.

Pooh:      Oh, bother. So, it is not all fine. Lots of people have lost their jobs. But the financial system seems okay. That sounds confusing.

Tigger and Eeyore: Yes, it is.

Pooh:      Hmmm. So, what next?

Tigger:    I say, full steam ahead. Let’s open everything up!

Eeyore:   And I say we should just try to be healthy and not worry about the economy and dreary things like that.

Pooh:      [Thinks a minute] Well, my belly is a bit rumbly. And it is telling me that we need to do both. We need to make sure that we are safe in our homes. We also need plenty of honey in the pot. I think we can do both, don’t you?

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1. US Bureau of Labor Statistics: Unemployment Rate (USURTOT Index) improved from 14.70% to 13.30%.
2. US Department of Labor: Weekly jobless claims of 44,206,000 from week of March 20 through week of June 15, 2020.
3. Source: Pew Research Center
4. US Bureau of Labor Statistics
5. US Bureau of Labor Statistics
6. CBS News
7. US Census Bureau
8. US Bureau of Economic Analysis
9. Washington Post
10. US Transportation Security Administration (TSA), June 9, 2020