More workers identified themselves as permanently laid off and unemployed for the long term in September, a sign the labor market’s recovery from the coronavirus pandemic is likely to be slow and protracted.
While millions of workers have returned to jobs that were suspended this spring due to the virus, those that weren’t called back face the rising prospect of prolonged joblessness and income loss. Those same challenges were a feature of the slow economic recovery from the 2007-09 recession.
In April, the most severe month for job loss in the current downturn, 88% of those who recently lost jobs reported their layoff as temporary, meaning they expected to return to the same role within six months, according to the Labor Department. In September, the share of such optimists fell to 51%, Friday’s jobs report showed.
Meanwhile, those reporting themselves as permanent job losers rose to 3.8 million in September, from 2 million in April. That figure could rise further in October as airlines and
Walt Disney Co.
informed thousands of workers this week that temporary furloughs will become permanent layoffs.
Many of those who lost jobs are struggling to find other work. Last month, 58% of unemployed workers had been out of a job for at least three months, including 19% off the job for at least six, and who are considered long-term unemployed.
During the third quarter of 2020, 23% of those long-term unemployed were Latino workers and 21% were Black workers, both disproportionately large relative to their shares of the population.
“It will be much harder to bring back that workforce in an economy that’s moving into a long, slow recovery,” said Beth Ann Bovino, chief U.S. economist at S&P Global Ratings. “A lot of the businesses where those workers lost jobs are now gone.”
Online business directory
said as of Sept. 15, 60% of the closed businesses it tracks, nearly 100,000, had no plan to reopen. Those closures, largely among small businesses, particularly hit restaurants and stores.
The growing length of the pandemic that took hold in the U.S. in March is one reason temporary job losses are becoming permanent, Ms. Bovino said. The longer it runs, the higher the chances of business failures, which result in more layoffs and fewer job opportunities. That would mean longer spells of unemployment, she said.
The unemployment rate dropped to 7.9% in September, but job creation slowed to 661,000, compared with the 1.5 million jobs created in August. WSJ’s Sarah Chaney explains the significance of the latest jobs report ahead of the presidential election. Photo: Rogelio V. Solis/AP
In the 2007-09 recession “people kicked to the sidelines took a long time to get back,” she said, adding this can weigh on consumers’ confidence and ability to spend. “Long-term unemployment comes with a stigma. Businesses make assumptions that there must be something wrong with workers that haven’t had a job for six months.”
There are also signs workers have become frustrated about their job prospects and have dropped out of the labor force. The labor-force participation rate, the share of adults working or looking for work, fell 0.3 percentage point to 61.4% in September, after trending higher from a recent low of 60.2% in April.
Participation among those 25 to 54 years old, in their prime working years, has edged down since June. That could in part reflect child-care difficulties for some parents.
The decline in participation was a factor that helped push down the unemployment rate to 7.9% in September from 8.4% in August. The rate only counts active job seekers.
The employment rebound driven by those on temporary layoff returning to work is nearing the end, said Michael Hicks, a Ball State University economist. “The bulk of remaining joblessness, and the historical decline in labor force participation, remain significant barriers to economic recovery,” he wrote in an analysis Friday.
Write to Eric Morath at email@example.com
How Trump’s and Biden’s Tax Plans Will Help or Hurt the Economy’s Recovery – Barron's
While political rivals are forecasting economic devastation if former Vice President Joe Biden were to raise taxes on the wealthy and corporations, many economists and tax analysts who have modeled outcomes have a different take.
The net effect of Biden’s proposals, when analyzed independently of spending and economic policies, would be negative economic growth ranging from -0.16% to -1.62% over the next 10 years, according to analyses by the American Enterprise Institute and Tax Foundation.
Slowed growth is attributed to higher taxes on the very wealthy, and major changes to businesses taxation, including an increase in the corporate tax rate from 21% to 28%, a doubling of the tax rate on certain income earned by foreign subsidiaries of U.S. corporations, and elimination of a 20% deduction for owners of pass-through entities with income of more than $400,000.
But when factoring in spending and economic plans—including those for trade, immigration, education, housing, health care, and other policies—the outlook varies by scenario.
An analysis by Moody’s Analytics finds that if Biden wins and Democrats win a majority in both the Senate and the House and enact his plans, average annual economic growth would be 2.9% and average annual wage growth would be 0.9% through 2030.
Moody’s finds that some 18.6 million jobs would be created over Biden’s four-year term, and full employment would be reached in the second half of 2022. Full employment is typically defined as an unemployment rate under 5%. It is about 8% today.
In contrast, if President Donald Trump wins the election and Republicans win the majority in both houses of Congress, the economic picture dims: 10-year economic growth would average 2.4%, wages would grow by 0.7% over a decade, 11.2 million jobs would be created over four years, and full employment would be reached in 2024.
If Congress maintains its split majority, with Republicans dominating the Senate and the Democrats in the House, the economic outcomes will be similar whether Biden’s or Trump’s tax policies are in effect—though somewhat more favorable under Biden’s presidency, according to Moody’s.
Analyses that compare the two candidates’ plans are handicapped by a lack of detail issued by Trump. For example, while he has stated that he supports a capital-gains tax cut, none of the analyses factor this in.
Generally speaking, however, capital-gains tax cuts don’t typically help the economy, says Garrett Watson, a senior policy analyst at the Tax Foundation. “There is no evidence that capital-gains tax cuts are growth-enhancing.”
Fall in Crude Oil Prices Puts USD/CAD on the Rise
A mid-October decline in crude oil prices produced a bleaker outlook for the immediate future of the Canadian dollar (CAD), which enabled the US dollar (USD) to get back on the front foot in the USD/CAD currency pair.
On October 15, crude oil prices shed over 3.5% of their value in a single day. The CAD is regarded as one of the world’s leading commodity currencies, such is the Canadian economy’s reliance on the money that it generates from exporting key goods.
Any decline in oil prices is liable to weaken the CAD, which thereby strengthens the USD’s position in comparison to the loonie. That was the case in March 2020, where oil prices plummeted to a four-year low and the USD/CAD rose to its highest level since May 2017.
Neither oil prices nor the USD/CAD currency pair behaved so dramatically in mid-October, but the general trends were the same. Experts have expressed their concerns about the future of oil prices in the coming months, so there may be more scope for the US dollar to make gains against its Canadian counterpart.
An otherwise strong year for CAD
While the USD’s position as a safe haven has proven reassuring to traders at several junctures throughout the year, the overarching narrative in 2020 for the USD/CAD currency pair is one of Canadian resilience.
USD/CAD rose by approximately 2% on June 12, with that single-day increase the consequence of the US Federal Reserve taking the investing community by surprise with its indication that interest rates would remain low for the next couple of years. That sent markets scrambling, with oil prices also falling to further weaken the CAD’s position.
Yet that was a fleeting moment of strength for the USD, with the CAD swiftly recovering its losses against the greenback. From June 12 to the start of September, the USD/CAD pair slumped by approximately 4.4%.
That saw its June mark of 1.3638 traded for prices in the region of 1.30 as September began. This is an indication of the strength of the CAD, as fewer Canadian dollars were required to purchase one US dollar.
That may not seem like a significant drop, given that the USD/EUR retracted by around 5.5% and the USD/GBP shrunk by around 5.9% in the same time period.
However, the USD/CAD currency pair is not one that is known for its volatility. This can be observed through the margin requirements put in place for forex brokers in Canada. Margin requirements contribute to Canada’s strict regulatory environment for currency trading. The margin requirement determines the percentage of their capital that a trader must put forward to open a new position on a market, with a higher margin percentage necessitating more funds upfront.
The reason that margin requirement is a good indication of a currency pair’s traditional volatility is that the pairs more prone to fluctuations have higher percentages. For example, the notoriously unpredictable pair of the South African rand and the Japanese yen (ZAR/JPY) usually comes with a margin requirement of around 29%, whereas the USD/CAD pair has a much more conservative 2% capital requirement for traders seeking to open up a position.
This makes the stretch between June and September for the USD/CAD currency pair particularly notable. The USD clawed back a small proportion of its losses in September, before almost retreating into the 1.31 region. The USD/CAD had not hovered around the 1.30/1.31 mark since January 2020, a testament to the CAD’s resurgence.
Oil concerns to dampen CAD optimism
The news of crude oil’s price decline gave the USD a platform to bounce back, with the USD/CAD ending October 16 at the 1.3225 level. Further gains are likely to be predicated on the long-term forecast for oil prices, with any bleak outlook for the commodity certain to be bad news for the Canadian dollar and the nation’s wider economy.
Other factors inevitably influence the USD/CAD currency pair, given the countries’ heavy trade links and geographical proximity. As demonstrated by that shift in momentum on June 12, the policies announced by either the Federal Reserve or the Bank of Canada can influence market sentiment.
General politics can also be significant. The last few months of 2020 for the USD/CAD are likely to be shaped by the outcome and immediate aftermath of the US presidential election, although this is not a phenomenon unique to the United States and the Canadian economy.
Markets all over the world will be affected by the victor’s presidential vision for the country, with their new social and fiscal policies having the potential to either instill confidence in the American economy or place the long-term future of the US dollar in jeopardy.
Given the US dollar’s prevalence all over the world, as a peg for some currencies and as the central part of dollarized economies, this promises to be an important close to the year. However, crude oil prices may still prove to be the dominant factor in shaping the USD/CAD currency pair.
The International Energy Agency’s October report is grim reading for commodity currencies. The IEA calls the outlook ‘fragile’, raising serious concerns about the long-term prospects for growth in oil demand. The IEA anticipates a stock draw of 4 million barrels per day in the fourth quarter of the year, although this statistic should be caveated with the acknowledgement that these figures are coming off the back of record-high levels.
Yet the IEA ends its October report with the declaration that oil producers have little cause for optimism in the long term. At the start of 2020, some experts were predicting that oil prices would not drop below $50 per barrel (bbl) all year. Now, the IEA suggests that the projected curve for oil prices will not reach the $50bbl mark until 2023.
While markets will eventually adapt to these new oil price projections, Canada’s reliance on commodities makes it difficult to foresee any substantial immediate gains for the CAD against the USD. The USD/CAD currency pair may have moved in Canada’s favour for much of the year, but crude oil concerns may provoke momentum in the opposite direction.
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