To understand what is important about the new employment numbers released Friday, imagine two different varieties of economic downturn.
In one, a handful of industries experience a near-shutdown for reasons beyond anyone’s control, driving millions of people out of their jobs. But most other industries carry on unfazed.
In another, a broad contraction in spending causes job losses across the economy. The story is not so much about one or two industries being devastated, but lots of them experiencing moderate pain.
Both would involve a lot of human suffering, and both would justify government action to help the people affected. But they would have strikingly different implications for government action.
In the first case, you would want very carefully targeted help to enable the people affected to stay on their feet until their industry can reopen. In the second, you would just want to pump money into the economy, to stimulate overall demand for goods and services.
In the early phase of the coronavirus pandemic, we saw both types of downturns. Travel-related industries were most affected and experienced the worst job losses, but the pain was sufficiently widespread that there was a generalized crisis of inadequate demand.
But as the year progressed, that changed. The federal government pumped trillions of dollars into the economy, and the Federal Reserve’s actions to support the financial system generated a rally in markets. Industries that were less directly affected by the pandemic figured out how to get up and running safely. And there was a veritable boom in people who bought stuff — durable goods, to be precise, like furniture and exercise equipment — spending some of the money they couldn’t spend on services like restaurant meals.
By the end of 2020, you could tell a story in which workers at hotels, airlines, restaurants and performance arenas desperately needed a hand, but most of the rest of the economy seemed comfortably on a path back to full health.
The January employment numbers, however, undermine that story. They suggest a stalling, and in some areas a reversal, of progress toward a full recovery even in the segments of the economy not directly affected.
There’s plenty of pain to be found in the leisure and hospitality sector, of course — it lost 61,000 additional jobs on top of a revised 536,000 lost in December. This is a brutal winter for the workers in restaurants, hotels and live entertainment venues. But if that were the extent of the pain, generous unemployment checks to the people affected might be enough to solve the problem. After all, we know what it will take to get those industries back to health: widespread vaccination and an easing of public health fears.
But why did durable goods manufacturers cut 17,000 jobs in January? Recall that spending on these goods was the bright spot in the economy in 2020 — yet the sector is still employing 421,000 fewer people than a year ago.
Or consider warehousing and storage. During the pandemic, there has been a surge in investment in new capacity to distribute goods without using retail stores, most famously by Amazon. Yet the sector shed 17,400 jobs in January. If you look at a three-month average to reduce the impact of seasonal quirks, the sector added only 6,000 jobs a month since November, compared with 31,000 jobs per month from August through October.
Other sectors don’t show quite so vivid a turn for the negative in January, but do support the notion of a stalling out. Jobs as couriers and messengers fell by 13,700; the construction industry shed 3,000 jobs; the insurance industry lost 9,300; advertising and related services lost 5,700; home health care services were down by 13,100.
It’s true that one could just as easily list industries with modest gains. But the gains from the second half of 2020 seem to be stalling out with the economy still far below its pre-pandemic levels.
Overall, the economy in January had 9.1 million fewer jobs than a year earlier, a 6.1% shortfall. That is consistent with a severe recession. But leisure and hospitality accounts for only 3.6 million of the lost positions. Even excluding those industries, employment is down 3.7%, consistent with a moderate recession.
And whereas in previous months, those sectors seemed to be quickly returning to health, that progress largely reversed in January, and many of them are now recovering at a glacial pace.
This slowdown implies that wider efforts to pump up the economy, like broadly available help for households and businesses, could be useful for addressing the crisis the economy is actually in, not one that just needs help for the sectors in lockdown.
A key to shaping economic policy is to diagnose the problems the economy faces. While you should never put too much weight on any one economic report, the latest evidence on payrolls is that this jobs crisis isn’t narrow and hasn’t gone away by a long shot.