At what point does a recession caused by a global pandemic become just a straight-up recession?
The American economy is figuring that out. Labor Department data released Friday showed that US payrolls in August increased by 1.37 million (including 238,000 temporary Census workers) and that the unemployment rate plunged from 10.2% to 8.4%, blowing away analysts' estimates for a drop to 9.8%. Just looking at that headline figure alone, one might conclude that the job market is completing a V-shaped recovery, much like financial markets and other economic data published as of late.
However, the underlying figures are potentially more sinister. In particular, the number of job losses considered "permanent" surged again in August by 534,000 to 3.4 million, the highest since 2013. The sharp growth in permanent job losers screeched to a halt in July, in what was seen as an encouraging sign about the path forward for the labor market. Friday's figures are a stark reminder that the damage caused by the coronavirus pandemic is still making its way through the economy. The US has yet to reach an equilibrium.
For reference, there were 13.55 million unemployed workers in the US labor force in August, meaning about 25% consider themselves permanently jobless. By contrast, when unemployment peaked after the last recession in late 2009 at 15.35 million, about 6.82 million were deemed permanent job losers, or roughly 45%. On a percentage basis, August marked the sharpest increase in that ratio on record.
This relationship will be worth watching in the months ahead as the US claws out from the pandemic. Already in the past few weeks, companies including large airlines, Ford Motor Co. and Bed Bath & Beyond have announced plans to cut workers. At its current pace, the US would approach 2009-level permanent unemployment, at least relative to the total jobless, by the end of the year. That's when the hardest part of building back the American economy will begin in earnest.
Of course, the jobs data as a whole was encouraging and trending in the right direction, which explains why Treasuries sold off, with the benchmark 10-year yield increasing by 5 basis points to 0.68%. Still, if the worst rout in US equities since June can be called a "healthy correction," I'd say the same thing for the world's biggest bond market. The 10-year yield is still poised to end the week about 4 basis points lower than it started it. Shorter-term notes still indicate that traders expect the Federal Reserve to keep interest rates near zero for many years to come.
More urgently, however, the increase in the permanently unemployed keeps the pressure on Washington lawmakers who are still squabbling over another fiscal relief bill. The supplemental $600 in weekly unemployment benefits and small-business aid from previous legislation has expired. If the sudden spike in unemployment was only temporary, and permanent job losses leveled off, then it's possible the first stimulus might have been enough. Friday's data makes clear that the US labor market is not yet on solid footing. At what point the fallout ends is anyone's guess — but additional aid would undoubtedly soften the blow.
"The end of most pandemic aid is one wrinkle to closely watch going forward," Chris Low at FHN Financial wrote. "In August, it may have boosted job growth as people had a strong incentive to find work. Later this year, it may have the opposite effect if spending weakens."
Only in the throes of a worldwide pandemic can a significantly lower-than-expected US unemployment rate raise so many questions. It's not an all-clear by any stretch.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.