Why the latest jobs report doesn’t signal economic recovery

In recent days, the U.S. has gotten a little bit of a break from devastating economic news. Early-August data shows that first-time jobless claims have dropped after weeks of increases, indicating that fewer citizens are actively losing their jobs. Next, a Labor Department jobs report showed that the economy had added 1.8 million jobs in July — a number that was greater than some had predicted, and a story that President Trump immediately seized upon.

In a vacuum, these are indeed encouraging numbers. We know that the economy won’t rebound all at once, and fewer first-time jobless claims coupled with significant job growth are clearly positive steps. Broader perspective, however, yields little reason to buy into the pace of our recovery — both regarding these jobs numbers and the economy more broadly.

Where the jobs numbers are concerned, it’s particularly important to consider the figures in the context of history. The jobless claims may have slowed somewhat, but 1.8 million people still lost their jobs, even as the country continued to reopen. For reference, jobless claims in August of last year were around 200,000. As for the 1.8 million jobs added, again, it’s an impressive number in a vacuum. But it’s also far fewer jobs than were added in May and June — perhaps indicating that rising coronavirus cases are actually taking a toll on the economy once again. Furthermore, the unemployment rate remains comparable to some of the worst numbers from the Great Recession.

Looking past recent jobs numbers, there are also additional reasons to remain skeptical of claims that the economy is back on track. Perhaps most notable is the fact that the U.S. GDP is at a historic low. A second-quarter annualized rate drop of 32.9% is the single worst performance on record. And GDP, some would argue, is the nearest thing we have to a statistic that measures an economy’s strength in a comprehensive manner. Ours is at a low despite the effort to “reopen” the economy (in many cases against the advice of public health experts).

Another factor worth taking into account is that the U.S. dollar appears to be weakening. This is something Senator Rand Paul anticipated in expectation of further “gargantuan federal bailout” efforts (as he chose to describe necessary financial relief during a pandemic). That said, potentially in the pipeline is another massive stimulus package should Democrats and Republicans agree on it. The former want $3.4 trillion in additional spending, while the latter are proposing $1 trillion. Either way, it will likely be a package in the trillions, as the two sides have made progress in what have been tense negotiations.

What we’ve seen, however, is that even without additional stimulus, the dollar has declined against popular currency pairs — such as the Euro and the GBP. FXCM point out how these forex parings, alongside the Swiss franc and Japanese yen, make up the vast majority of the forex market, and despite the fact that the UK has also struggled to get its outbreak under control, it says a lot that the dollar is depreciating against it. Meanwhile, the Euro is soaring against the dollar. As many European nations have gotten the coronavirus under relative control, and economies have opened back up, the Euro has attained a value against the dollar higher than any since the spring of 2018.

Lastly, it’s also worth looking at consumer spending, which is on the rise — but not without cause for concern. While Reuters details that spending rose 5.6% in June, there’s a concern among experts that the “mismanaged health crisis” could cause the next phase of recovery to be “much slower.” Additionally, a portion of the spending increase came from low-income families, who are now seeing congressional fiscal aid packages expiring. Just this week, President Trump took it upon himself to manage the next aid package after Republicans and Democrats in congress failed to agree on terms. Under the president’s proposed executive order though, families in need of unemployment benefits will now receive $400, instead of the $600 they received in the first package. It’s exceedingly likely that this reduced number will also cap spending increases among low-income families, which would contribute to stalling the recovery.

This is not to throw cold water on the positives we are seeing. A reduction in jobless claims is good news, as is the addition of more jobs. But these numbers are not nearly as encouraging as they appear at a glance. And beyond raw jobs numbers, a disastrous GDP, a weakening dollar, and a consumer spending picture that is murky at best suggest that our recovery is going slowly.