Today, there is an estimated 20.5 million Americans without a job. It is an estimate because the true numbers of unemployed is unknown. About two weeks ago in “The Pending Unemployment Catastrophe” (link) we looked the unemployment rates from the Great Depression onward. Although the unemployment numbers released for April are not the 20%, I predicted in the article of April they are still devastating, nonetheless.

According to the Labor Department, the unemployment rate stands at 14.7%. Not only is the rate extremely high but the speed in which it rose so high is the worst in recorded history.

The number will likely rise in subsequent reports.

The rhetoric is that the job losses are temporary and as many as 80% of the workers will return to work as soon as the economy opens again. At least that is what the administration wants everyone to think. Trump expects it to be a “phenomenal year”.

But the optimism, both by the Trump administration and the workers who believe they have a job waiting for them is likely misplaced. Too many workers are behind on their rents/mortgages and other payments. They first need to make those up before they contemplate how much disposable income they have for dining out or entertainment.

The greatest job losses were in entertainment and dining.

Even if businesses, especially the small ones, want to hit the road running when the economy opens again, they must contend with unpaid bills and disrupted supply chains. Disposed milk and slaughtered chickens do not suddenly refill the supply chains back to normal. They were disposed because their carefully planned growth cycles meant that excess inventory went to waste. The supply chains are disrupted. It will take time to ramp up again.

Likewise, the financial situation of small businesses does not mean a repid reopening and hiring of workers. It means that bills need to be paid and reopening will be decided on how many patrons are ready to consume again.

It is the chicken-before-the-egg cycle that depends on each piece, the consumer, the worker and the businesses all doing their part.

It is going to be worse before it gets better, even if America were to fully reopen today.

But even the 14.7% number does not tell the whole story. This is because the actual rate is closer to 20% then the 14%. Why?

The answer is in how unemployment rates are tabulated. If a worker is not actively looking for a job, then they are not counted. Who is not looking for work? The workers who believe they have a job waiting for them. The workers receiving unemployment benefits currently, or those who have been furloughed with paychecks are not looking for jobs. Thy may not have jobs after the dust settles.

Furloughs may become permanent. The reason is simple, as the economy opens, businesses reevaluate their financial conditions. How many clients are paying? How many clients are written off as bad debt? How many clients are consuming?

To get a good understanding about this one needs to look at the medical sector. One would think the pandemic is good for hospital bottom lines, but many medical facilities are in distress. Why? Simple, the pandemic disrupted medical procedures that are not directly tied to the pandemic thus affecting the revenues of the facilities.

Will the medical procedures come back once the economy is open? That depends on who is paying the bill. Stress on the medical fields just adds further stress on the whole economic model that depends on consumers spending money. Each part adds more to the chicken-before-the-egg economic model that drives the economy.

Unfortunately, things will get worse before they get better. The numbers demonstrate this.

Martin Paredes

Martín Paredes is a Mexican immigrant who built his business on the U.S.-Mexican border. As an immigrant, Martín brings the perspective of someone who sees México as a native through the experience...