Current unemployment rates show the US job market is bouncing back from the coronavirus recession far faster than experts recently predicted. That stands in stark contrast to 2009, when Americans experienced much higher unemployment rates than projected by proponents of the Obama stimulus plan.
As Democrats’ February 2009 stimulus law was in its final drafting stages, the lead economists for the incoming Obama-Biden administration released a report summarizing their expectations for the “Job Impact of the American Recovery and Reinvestment Plan.” That January 2009 report included a memorable chart showing projected unemployment rates with and without the stimulus legislation (the blue lines below). But when reality didn’t match those projections, Congressional Republicans turned the chart into a political cudgel, regularly adding actual unemployment rates (the red line) to show how Democrats’ stimulus wasn’t delivering jobs as promised:
So omnipresent was “the chart” — accompanied by chants of “where are the jobs” — that if you do a Google images search for “Obama stimulus” today, the chart above is still one of the first results.
The slower-than-projected jobs recovery became a political disaster for Congressional Democrats, who lost the House majority in November 2010. As outgoing Speaker Pelosi admitted then in defeat, “Nine-and-a-half-percent unemployment damaged the majority.”
Fast forward to 2020. The state of the US economy is likely to have a powerful effect on this fall’s elections, too. But there are several key differences this time, including that the March 2020 coronavirus stimulus plan was approved by overwhelming bipartisan majorities, and the Trump administration opted against releasing updated forecasts for the economy’s recovery. Still, estimates released by the nonpartisan Congressional Budget Office (CBO) on May 19, 2020 reveal what may be the most important difference between the Great Recession experience and today: unemployment this time has improved far faster than experts projected.
Here’s how actual unemployment rates reported by the US Department of Labor through August compare with CBO’s May projections through calendar year (CY) 2021:
CBO Projection vs. Actual Unemployment Rate, CYs 2020-21
Sources: Congressional Budget Office and Department of Labor. The “CBO projection” line is the author’s depiction based on monthly, quarterly, and annual unemployment rate projections included in Table 1 of the May 2020 CBO report.
As the chart displays, August’s 8.4 percent unemployment rate is not only significantly below the 15.8 percent average unemployment rate CBO projected for the third quarter of 2020, but it is even below the 8.6 percent average unemployment rate CBO projected for the fourth quarter of 2021.
As both CBO and DOL describe, employee misclassification issues reduced the official unemployment rate somewhat in recent months (although DOL noted this dynamic “was much smaller in July and August than in prior months”). Nonetheless that factor led others like Jason Furman, former Chair of the Council of Economic Advisors in the Obama Administration, to calculate what he calls a more “realistic” unemployment rate. But even at 9.9 percent for August, that “realistic” rate is still far below CBO’s projection for the current quarter — and even its projection for the end of this year.
Other labor market data also are coming in far better than what CBO projected. For example, CBO noted that by the fourth quarter of 2021 “household employment is projected to recover to 148 million.” Current DOL data show seasonally adjusted household employment has already rebounded from 133.4 million in April to 147.3 million in August — close to CBO’s projection for the end of 2021. CBO also projected the employment-to-population ratio would rise to 56.2 percent by the fourth quarter of 2021. Meanwhile the actual employment-to-population ratio rebounded to 56.5 percent in August, already exceeding CBO’s projection for the end of 2021.
In recent months CBO and other forecasters have had the unenviable task of projecting employment changes in the midst of unprecedented health, economic, and legislative changes. Unemployment remains historically high and the recovery still has a long way to go. But thankfully current unemployment rates suggest the job market is bouncing back far faster than experts predicted it would just a few months ago. That has important political and policy implications, including as Congress and the administration debate further stimulus measures. But most importantly, and in stark contrast with the experience following the Great Recession, it suggests that for millions of Americans jobs and paychecks are coming back far stronger and faster than previously expected.
Matt Weidinger is the Rowe Fellow in poverty studies at the American Enterprise Institute (AEI), where he works on safety-net policies including unemployment insurance and cash welfare. He is the former deputy staff director of the House Committee on Ways and Means.