Brookings' David Wessel: Analyzing The New Unemployment Numbers

Originally published on March 26, 2020 11:59 am
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NOEL KING, HOST:

I want to bring in David Wessel now. He's the director of the Hutchins Center at the Brookings Institution, and he wrote a book called "In FED We Trust" about the Great Recession. David, good morning.

DAVID WESSEL: Good morning.

KING: What do these numbers today tell us about the depth of this recession?

WESSEL: Well, this is one of the first official economic measures to show just how severe the recession is in the opening innings. I mean, back-of-the-envelope estimates I've seen is that this increase alone translates into a 2 percentage point increase in the unemployment rate, and this is clearly the tip of the iceberg. Surely, more workers will be laid off or furloughed this week. And until this bill that's working its way through Congress is signed into law, there's lots of workers without paychecks who aren't eligible for unemployment benefits, although they will be when the law is signed.

KING: We just heard NPR's correspondent Jim Zarroli say this happened quickly, and hopefully, it will bounce back quickly. I want to ask a slightly darker question. You mentioned that this might be the tip of the iceberg. I hate to use this word, but we have seen responsible economists do so in some cases - if this goes on longer, might we be looking at a depression in this country?

WESSEL: Well, I don't want to say never, but here's the reasons why I don't think we're on that trajectory.

KING: OK.

WESSEL: One is the underlying productive capacity of the economy has been shut down, but it hasn't been permanently handicapped. I mean, there are - planes will fly again; restaurants will open again. But secondly and most importantly, the government has responded very quickly to this horrible event. The reason the Great Depression was so bad is that fiscal and monetary policy was wrong. They strangled the economy instead of supporting it.

So we've had the Fed, which has this playbook - how not to have a Great Depression - doing all sorts of things. I mean, Jay Powell said today that the $454 billion that Congress is giving the Fed to be a kind of - to handle loans will allow the Fed to raise - to lend $4.5 trillion. And then Congress has passed a $2 trillion bill here. So there's a lot being done, and I think that will prevent another Great Depression.

KING: We've learned lessons from the past. That's - I appreciate that optimism. Do you think the government will need to do more beyond the $2 trillion financial aid package that we're expecting the president to sign?

WESSEL: Yes, I think they probably will. A lot depends, of course, on the course of the virus. One of the things that makes this hard for economists and Federal Reserve policymakers to talk intelligently about is you really can't know what the economy is going to be like unless you know when the virus is going to recede. But in the conversations I had yesterday, particularly state and local governments are going to get hit really hard by this. They're going to get less revenue, and they're going to spend more. And it's likely, it seems to me, that we will have to do more for them.

The unemployment benefit extension that the Congress passed - or is in the process of passing goes 39 weeks. Usually, in recessions, they extend it beyond that. So I think it's almost certain that Congress will have to go back and do more before this thing is over.

KING: We're putting a lot of stock in these unemployment numbers, and there's good reason for that. But economists will often tell you there's more than one indicator that you have to keep an eye on in a time like this. What other indicators should we be watching right now?

WESSEL: That's a good question because a lot of the government indicators are telling us what happened before the coronavirus hit. So, like, we'll get the unemployment numbers on Friday, April 3, but they'll be for the week of March 12, and that was before the worst came.

So I think there are a couple of things to watch. One is there are a huge number of private sector indicators. OpenTable is telling us what's happening to restaurant reservations. There's a firm that's - follows people's cellphones and says what's happening to traffic at airports and malls. Those are important. And then early next week we get the purchasing manager surveys, which are kind of an impression that you get from businesses about how they're doing, and that'll be important to watch because it's an early indicator.

KING: David Wessel of Brookings. Thank you.

WESSEL: You're so welcome. Transcript provided by NPR, Copyright NPR.