Thursday, September 24, 2020
Sept. 24, 2020

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The Week Ahead: Counting the uncounted

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Investors are braced for an unemployment rate around 20% when the May figure is released on Friday in the week ahead. What’s less certain is how many people won’t be included in that jobless number even though they have lost work.

Instead of focusing on what will likely be a jaw-dropping unemployment rate in May, economists and investors increasingly are turning attention to how many people are considered part of the labor force. Also in focus will be how many people are no longer counted in the workforce, but want a job.

That number has more than doubled since February because of COVID-19. Almost 10 million Americans have dropped out of the labor force – thus are not counted as unemployed – yet they want a job right now.

This actually makes sense for workers who have been furloughed. They aren’t working, but have been told they will be brought back to work at some point in the future. As a result, they are not actively looking for a new job. In order to be considered unemployed in America, you have to be actively looking for a job. Stay at home orders that were still in affect in last month naturally discouraged job hunting. The effect of this is an understated headline unemployment rate.

It also drives down the workforce participation rate. It fell to just 60% in April. That’s the lowest proportion of Americans considered part of the labor market since the early 1970s when Baby Boomers were just beginning to enter their working years, and growing the supply of U.S. workers.

The supply is shrinking now. That contraction could slow the return of workers, and in turn slow the rebound investors clearly are counting on.

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