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We still have a huge hole in the economy and the question is how are we going to manage this going forward: Economist

Constance Hunter, KPMG Chief Economist joins the On the Move panel to discuss the impact of COVID-19 on jobs and the economy.

Video Transcript

- First, let's talk about the jobs report in more detail. And to do that, we are joined by Constance Hunter. She's KPMG Chief Economist. She's joining us from Long Island. Constance, it's always great to see you. So when you look at these numbers, yes, they were better than estimated. Yes, they perhaps show an improving trend. Or do they? How encouraged should we be by these numbers?

CONSTANCE HUNTER: So certainly we saw improvement. But we don't see an improving trend, right. We had an increase of 4.7 million jobs in June, only an increase of 1.7 million in July. Now it may seem strange to be saying only. So we need-- think we need to just level set where we are.

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So in terms of GDP from the peak, we are down 8.1%. And in terms of jobs from the peak, we're down 8.4%. So we still have this huge hole in our economy. And the question is, how are we going to manage this going forward, right? So the goal of all of the pandemic assistance was to ringfence the sectors impacted by COVID, right.

So if we look at leisure and hospitality, that unemployment rate is almost 24%, a huge impact on that industry, retail, a huge impact, mining, a huge impact because of the big decline in oil prices really hurting oil and gas extraction. And so if we just ringfence the sectors of the economy that are most impacted, we will prevent the normal aspects of a recession from spilling over into other areas of the economy.

If we don't do that, we're going to see that spill over increase. And the breadth of the recession is going to widen. And therefore, the length of the recovery will be increased.

- I am curious, though, there was a reading in the report that talked about temporary unemployment decreasing by 1.3 million. So how do you interpret that? Because I know, for instance, the Fed has been very concerned about permanent job loss, as jobs are just totally eliminated. Can you extrapolate with that statistic tells us?

CONSTANCE HUNTER: Well, it's funny you say that. Because I was literally just looking at that graph. And while that is a very large number, right, furloughed workers as a percent of all job losers is, since the pandemic started, is 79%. Now it was-- what was it at the peak, it was 89.3%.

So it is come down-- it has come down. And so that would imply that permanent job losses are rising, where temporary job losses are falling. And, of course, speaking to my comment earlier about ringfencing, that would suggest that we're-- that we're sort of losing the battle on that firewall that we're trying to create around the COVID-induced induced problems in the economy.

- Constance, when you look at some of the jobs that have started to come back, right, are we going to see them fall off again because of the increase in cases? Is this almost something that's kind of a temporary chunk that will send us back down into a valley? How do you think that'll work out?

CONSTANCE HUNTER: Yeah, I mean it's hard to say. We certainly see when we look at high frequency data, for example, in states like Florida, where you saw restaurant attendance was starting to come back more significantly than a lot of other areas, and we were at down 25% about in the best case in certain cities. And that's gone back to down 40%, 50% from last year or so.

So certainly we see what we call aversion behavior, that is people choosing not to go out into situations where they're going to be in large crowds. And so there is a chance that if that aversion behavior continues, that we will-- some of these jobs that have come back in the leisure and hospitality sector will turn out to be reversed.

You know, I also think restaurants are finding ways, those that are able to stay open, are finding ways to do it as safely as possible. And certainly even in states like Florida, right, we're seeing the case increases just flatten a little bit. So it really depends on how prudent we are with regard to the measures we can take that slows the spread.

So a Cleveland Fed survey that went out shows about 75% of people are likely or extremely likely to wear masks. And we know that mask wearing slows the spread significantly. One study out of Germany, which compares a part of Germany that had instituted mandatory mass wearing ahead of the rest of the country, saw a 40% decline in the spread of COVID.

So if we keep improving in the preventative measures that we can take, I think that will help preserve big parts of the economy from getting worse.

JARED BLIKRE: Jared Blikre here. I want to get your take on the seasonal adjustment factors here. Government employment rose by just over 300,000. But a lot of that had to do with the seasonality, adjusting for the fact that a lot of state and local government employees, especially teachers, go away for the summer.

CONSTANCE HUNTER: Yeah. So in that case, what happens is that the teachers in some cases had already been laid off. And so we saw a decline in education workers not so much teachers but other types of education support services early on in the pandemic. And so that seasonal adjustment is going to be skewed for this year. And it's really important to look at the unseasonally adjusted numbers.

But look, in the grand scheme of things, 300,000 workers, which was once a-- could move the needle on the jobs number, really in the grand scheme of things does not move the needle, right. So when we look at this data and we want to say what does it tell us about the current state of the economy, what does it tell us about the future of the economy. I think that there are other sectors of the report to look at that give us a bit more information.

So, for example, something like the diffusion index, which had been 75 in June, so we saw a large amount of breadth in terms of hiring, has fallen back to 61.4 in July. So that breadth of hiring has shrunk. And that's a really important indicator with regard to how durable are these job additions going forward.

- Constance Hunter, KPMG Chief Economist, thanks as always for your analysis on these numbers and some perhaps needed prudence as we look at them going towards the future.