Markets & Economy

As we move further into Fall, it’s becoming clear that the pandemic is having a lasting effect on the economy. A massive number of Americans were furloughed or laid off earlier this Spring, and more than six months later, many former employees are still looking for work.

We believe the worst is over, and there is no doubt that the economy has begun healing, but in just the past few months, several major employers including Disney, United Airlines, and Allstate Insurance, have made significant additional layoffs. This isn’t to mention the thousands of restaurants, bars, stores, and other small businesses whose temporary closures have become permanent.

We’re keying in on jobs today because the labor market is such a vital indicator of the health of the economy. Unemployment is down from its highs, but it is proving to be stickier than some may have expected. And even without layoffs, fear over job safety can slow down consumer spending, causing individuals and families to tighten spending as they prepare for the worst. With consumer discretionary spending making nearly 70% of GDP, this can have huge implications.

Today, we’re looking at some of the most alarming areas of concern for the labor market and who may be affected long-term when the virus is a thing of the past.

Stubborn Rates and Stimulus

Despite evidence that the economy has turned a corner, persistent unemployment remains a clear sign of ongoing recessionary conditions.

While temporary layoffs have been decreasing monthly since April, permanent layoffs have gone up each month. Additionally, the duration of what is considered a temporary layoff has become quite long compared to history. Nearly 70% of workers who have been temporarily laid off remained unemployed for over 15 weeks. The previous record was 48.6% of workers in 1983.

Alleviating joblessness and improving overall economic conditions requires either time or money, and by money, we mean further fiscal stimulus by the federal government. The first round of stimulus, including the $1200 one-time checks and expanded $600 unemployment insurance benefits, certainly had its flaws. Yet, it also injected a massive quantity of money into people’s hands when they needed it most, and it helped the economy bounce back from an extraordinary event that could have been much worse.

While the first round of stimulus was effective, more is needed, and it is easy to see why the market can become so hung up on the latest political musings and rumors. The need for additional assistance is intense and ongoing, and the prospects for more aid seems to have become monumental task, caught up in political disagreements only loosely related to the matter at hand.

No School, No Daycare

Until more help is provided, many American families are having to adjust their lifestyle to their new pandemic-driven life and financial realities. In many cases, the challenges go beyond joblessness.

Even those whose sources of income haven’t been directly impacted are facing additional challenges due to remote schooling and daycare closures. Some employers are assisting by allowing flexible work arrangements, but many aren’t so lucky. Jobs that require the employee to be on location or demand continuous uninterrupted engagement make simultaneously managing children at home and work incredibly difficult.

It may be no surprise to hear that many families are deciding they need to do something different, and that something different involves one parent sacrificing work for full-time parenting. Unsurprisingly, that one parent has overwhelmingly been mothers, due to gaps in compensation.

America’s Leaning Out

Today’s burden on young families is incredible, and it has the potential to massively set back the progress of women in the workplace, progress that has taken decades to achieve.

According to a joint report by Lean In and McKinsey, women are leaving the workforce at a higher rate than men for the first time in six years and at approximately 4x the rate of men. Up to one of every four women are considering downshifting their careers or leaving the workforce altogether. This number increases to one in three for mothers, specifically. We wonder if this number could get worse should the country experience a second wave of COVID outbreaks that cause school re-closings and/or mass lockdowns.

Additional considerations, including the fact that women may be overrepresented in the more impacted industries, including businesses that are non-essential, but require a lot of customer contact. Many women still suffer from gender traditions at work versus male counterparts—pressure not to appear that they’re prioritizing family life over work—make the situation even more dire.

Slowing Down

These distressing conditions don’t point to all-out disaster for coronavirus recovery, but they do point to slowing progress, partially stemming from decreasing consumer spending. It doesn’t matter whether it is due to layoffs, parental pressures, family considerations, etc., a huge non-temporary decease in the number of people working will act as a substantial drag on the economic recovery.

The road ahead is long and not entirely clear, and the economic effects are likely to last much longer than the disease itself.

This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.