There’s going to be parts of the economy that ‘won't get help from the Fed’: Expert

Nareit Senior Economist and Former Federal Reserve Economist Calvin Schnure joins Yahoo Finance’s Akiko Fujita to discuss the most recent jobless claims as another 2.123 million Americans file for unemployment benefits.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest here. Calvin Schure is a Senior Economist at Nariet, he's also a former Federal Reserve Economist. Calvin, we want to get to you on those numbers that we got today. You know, you look at $2.1 million. I mean, that is still a very painful number, and yet we've gotten so accustomed to seeing the $3 million, and the $4 million in the previous weeks. How should we be processing this number that we got today in terms of where we are in the recovery process?

CALVIN SCHURE: The first point to keep in mind with the jobless numbers this morning is just remember the human impact. This is a huge number of people who are filing for claims and also talk about the people who are on the unemployment rolls who are collecting unemployment insurance benefits. So 2.1 million is a huge number, but it's less than a third of what it was six weeks ago. So it's come down quite a bit, and it's probably not even an accurate indication of how many people were laid off over the past week, because we know the states are having difficulty processing past claims and so on.

So some of these were people who lost their jobs several weeks ago. So we do know the economic impact of the stay at home orders is lessening as we go on. Another really important read from this number though that the people collecting unemployment insurance fell by 3.8 million, but that suggests that the government policies, the PPP to get employers to keep people on the payrolls or bring them back to payrolls, it's having some effect. So we may be seeing a bottom of the job market impact fairly soon.

AKIKO FUJITA: That is the positive takeaway, if there is a positive in a number of 2.1 million. But that certainly, as you point out, a significant number given that we are now well past the two month mark at these stay at home closures, and yes, we have seen some of the states reopen or a majority of the states reopen. What does that 2.1 million suggest to you in terms of what is actually happening on the ground though? Are these permanent losses? Are these businesses who are after the reopening deciding we simply can't go on?

CALVIN SCHURE: Well, we have some detail on the industries that were having layoffs, and a lot of it has still been the restaurant, the hotel, the accommodations, and those type businesses that really just shut down. But that doesn't get into a lot of the rest of the economy. There are still many parts of the economy that have been hurt, but they have not been hurt with the type of body blow that we see here. So what we're seeing is a very disparate impact on the US economy. The front line sector is practically shut down completely, but the rest really is holding their breath to see if we can get back to business.

AKIKO FUJITA: Calvin, you point to the fact that the number of people who are claiming on insurance unemployment benefits are going down. You know on the one hand, that seems to suggest that the PPP and stimulus is working. We did get this House bill today that passed that allows for more flexibility for that, which essentially says look, you don't have to hire all the employees back. There are other ways in which you can use that. Does that work to the benefit of these small businesses who are sort of contemplating whether to reopen or not? And ultimately on the employment side of things, does that hurt employers because these businesses are no longer tied to hiring everybody back?

CALVIN SCHURE: What we need to keep in mind here is this recession is so different from anything we've had in the past. In the past, there was an imbalance or a weakness that took months and months and maybe even a year to unfold, and you had to address the underlying cause. Here, it's just a question of can we get through two months or three months when we're short on cash flows, when you're not getting sales because things are shut down. But there's an end in sight to those stay at home orders. So really what's needed is a lifeline in terms of being able to make the payroll, being able to get some lending to get us through until the economy starts opening up again. That's what these policies are aimed at, and that's the right medicine that we should be having.

AKIKO FUJITA: Let's talk about how the Fed is viewing this. Certainly, it's still a pretty pessimistic outlook yesterday that we got. Talking about a highly uncertain economy. They were certainly downbeat on small businesses or just businesses in general as well. What was your read on the commentary that we got?

CALVIN SCHURE: Well, yes, it is really having the hardest impact on the small businesses that many of them are the retail shops, the restaurants, the hair salons, the barbers, and so on. And not only do they have the most face to face contact with the public, but they also just don't have the financial resources. No business like that plans for three months with no cash flow. There's only a limited amount that the Federal Reserve can do to reach every one of those companies. They're trying through the different lending programs. They're trying to get the cash into the private sector, but it's only going to reach some of the areas, and there is going to be a lot of damage that is not able to be helped by the Fed.

AKIKO FUJITA: You know, what we've heard from the administration is that things are going to bounce back once things reopen. Now, things have reopened. Do you feel like you have a better sense of how many of these jobs that we have seen lost over the last two months are actually going to come back?

CALVIN SCHURE: We really don't know. We did see in the unemployment report last month that about 80% of people said they expected the layoffs to be temporary, but that can change. The company's position may change, the company may not survive. There's other research that's showing though that a lot of the layoffs are not so much associated with stay at home orders, but just the incidents of the virus. That is, the stay at home orders are important policy response, but it's really the underlying condition that people don't feel safe to go out and do things that's keeping people from spending.

AKIKO FUJITA: So what does that suggest to you in terms of how quick the recovery will be? You know, getting an employee back in through the door, that's got to be a tough position to be in for businesses.

CALVIN SCHURE: That's right. It's not going flicking a light switch on. It's going to be turning a dial, and that dial is going to go slowly. People are going to come back only, first of all, for the things that they really need to do, the places where they feel safe going. And more importantly as we get testing, and contact tracing, other controls into the areas where people live. This is going to take some time for people to feel safe. It's going to take some time to undo the damage of a bankruptcy of a layoff or the things that keep people from being able to spend as they would like to.

AKIKO FUJITA: Calvin Schure, always good to get your take on all of this. Calvin Schure, the Senior Economist joining us from Nariet.

CALVIN SCHURE: Thank you.