A Look at US Unemployment One Year Into COVID-19
The coronavirus pandemic brought the swiftest recession in history to the United States. In just two months, the unemployment rate skyrocketed from a benign 3.5% in February 2020 to the highest rate it had been since 1940, 14.8%, by April. At the time, economic forecasters were universally gloomy, expecting the rate to remain above 10% even at the end of 2021. Yet, something miraculous happened to U.S. unemployment nearly as soon as it hit those record highs. Immediately, the unemployment rate did an about-face, falling every month since.
In defense of the economic prognosticators, the economy doesn’t usually recover rapidly from such disastrous levels. For example, during the Great Recession at the end of the 2000s, unemployment ran above 7% for an extraordinary 59 months, from December 2008 to October 2013.
In the coronavirus recovery, the unemployment rate fell from its peak of 14.7% in April 2020 all the way to 6.7% by the end of 2020. Thus far in 2021, the unemployment rate has continued to fall, hitting 6.3% in January. That’s an improvement of 8.5 percentage points, representing over a 57% recovery in the unemployment rate. By any measure, this appears to have been a remarkable economic comeback. But you have to dig deeper than just the unemployment figures to grasp what’s really going on in the American economy.
True Economic Status of the Coronavirus Recovery
Reading the unemployment numbers in a vacuum, it would seem that the U.S. economy is already well on the path to recovery on its own merits. So, why is there all this talk of the need for an additional $1.9 billion in economic stimulus from the government?
The reason is the type of recovery that is occurring, which some economists have referred to as “K-shaped.” In a K-shaped recovery, some areas of the economy actually prosper while others continuously suffer. During the coronavirus recovery, there’s no denying that certain areas of the economy have thrived. For example, the stock market keeps making all-time highs, and many of those who have kept their jobs, particularly in white-collar segments of the economy, have done quite well, continuing to draw a paycheck and being able to save the stimulus money already paid by the government. Meanwhile, sectors such as service-oriented industries, have been decimated. Many other small businesses have been hanging on by a thread — or even failing — while big-box retailers and online enterprises succeed.
Thanks to ongoing stay-at-home orders and coronavirus shutdowns, businesses that require in-person interaction have been forced to either change their business models or shut down. This has disproportionately affected mom-and-pop businesses and workers in service-oriented and working-class jobs, many of which are gone forever. Leisure and hospitality has been the hardest-hit sector, losing nearly 50% of available jobs during the pandemic. According to the Bureau of Labor Statistics, as of January 2021, more than 3.5 million workers have permanently lost their jobs.
Current Economic Forecasts
The Federal Reserve projects that the U.S. unemployment rate will continue to steadily fall in coming years, dropping to 5.0% in 2021, 4.2% in 2022 and 3.7% by 2023. A bounceback in real GDP is also expected in 2021, to a rate of 4.2%.
A wave of government stimulus and continued low-interest rates are expected to help provide a favorable backdrop for economic recovery. While rising housing and stock market values have already benefited a segment of the population, the hope is that the success of vaccines against the coronavirus will allow impacted segments of the economy, such as leisure and hospitality, to dramatically recover.
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Methodology: GOBankingRates used the Bureau of Labor Statistics’ Civilian Unemployment Rate historical data to find the country’s (1) unemployment rate for every month in 2020 and January 2021. GOBankingRates then found the (2) year-over-year change in unemployment; (3) year-over-year percent change in unemployment; (4) peak (highest) unemployment rate in 2020; (5) change from peak unemployment to January 2021 unemployment rate; and (6) percent change from peak unemployment to January 2021. All data was collected on and up to date as of Feb. 5, 2021.