Fleet Maintenance - 36

E CO N O M I C O U T L O O K
»When the U-3 stood at 3.5 percent in
February, 158.7 million people had jobs.
1204291206 | Orbon Alija | Getty Images

Between now and
the time we get
to 7 percent, we
really won't be in
position to evaluate
the longer-term
prospects for
the economy.

The seven percent
solution
Watching the unemployment rate
for signs of a recovering economy.

Those of us of a certain age will recognize
the title of this article as that of a mystery
story in which Sherlock Holmes comes back
from the dead to save the day. We are using
it to introduce a discussion about the current
and future path of the unemployment rate and
why seven percent will be a number of particular importance.
The COVID-19 pandemic was largely
responsible for the headline unemployment
rate, called the U-3, going from 3.5 percent in
February to 14.7 percent in April before falling

By Robert Dieli

ECONOMIST, MACKAY & COMPANY AND PRESIDENT,
RDLB, INC.
MacKay & Company specializes in market research for
commercial trucking, construction equipment, and
agriculture machinery. The company provides strategic
research and analyses to vehicle and component manufacturers, distribution and service channels, industry
associations, and private equity firms. With a long career
managing portfolios and coordinating domestic economic
forecasting programs, Dieli began RDLB, Inc. in 2001. In
this role, Dieli serves as an advisor to many firms in the
truck, consulting, and financial services sectors. He is also
an economist with MacKay & Company.

36 Fleet Maintenance | July 2020

back to 13.3 percent in May. The reason we say
"headline" is because that is only one of several
ways to estimate the percentage of the labor
force that is unemployed.
Another measure that receives a great deal
of attention is the U-6, which includes the U-3
as well as other measures of underutilization
such as part-time employment. That statistic went from 7 percent in February to 22.8
percent in April before dropping back to 21.2
percent in May.
The decline in both measures had mostly to
do with the beginnings of the reversal of the
effects of the pandemic. We are going to see a
lot more such effects in the reports that will be
released over the next several months.
At some point, we should see the U-3 back
at 7 percent.
This will mostly mean that we have reopened
the economy and put many of the people who
were sent home during the lockdown back to
work. Beyond that, we will have to look into the
details of the reports to see where we stand.
The first detail we will be looking for is the
size of the job gains. When the U-3 stood at
3.5 percent in February, 158.7 million people
had jobs. When the U-3 stood at 14.7 percent in
April, 133.4 million people had jobs. The question will be: How many of the 25.3 million jobs
that were lost between those two dates have
been restored?

The second detail we will be looking for is
which jobs were restored. For the first time
in modern economic history, the job losses
were concentrated in the service sector of the
economy. Traditionally, manufacturing and
construction are on the leading edge of the
downturn. We know a lot about how recessions
and subsequent recoveries work when they are
based in the goods-producing side of the economy. The service sector recovery is going to be
an education.
The final detail we will be looking for is
where the jobs were restored. The reopening
of the economy came in phases and was started at different times in different parts of the
country. How successful and sustainable those
efforts were will have to be evaluated as the
news is received.
Which brings us to our final point. The
Bureau of Labor Statistics (BLS) compiles the
employment data using two separate surveys.
The first, called the Establishment Survey, asks
businesses how many people they had on the
payroll. The second, called the Household
Survey, asks individuals (each of whom is
interviewed by an enumerator) about their
employment status and their job characteristics. All of these procedures have been in place
for decades and are followed scrupulously, so
there is no reason to doubt the accuracy or the
integrity of the results. And, as has been the
case recently, when there are special circumstances such as difficulty in reporting, the BLS
discloses those problems and the steps taken
to address them.
Between now and the time we get to 7
percent, we really won't be in position to evaluate the longer-term prospects for the economy. We strongly hope we get to 7 percent
sooner rather than later, but we would not be
surprised to see that process take the rest of the
summer. Until we get to 7 percent, all we will
be seeing is the rebound from the pandemic.
That is no small achievement, but 7 percent is
not 3.5 percent. And 3.5 percent is where we
ultimately need to be.

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