by Current Numbers on Unemployment and What it means
As the war against COVID-19 rages on, it is important to look at the numbers and see how this virus has effected the economy. Throughout this article, we will look at what key factors have been effected throughout this pandemic and what the numbers mean, as well as mentioning and briefly describing what some of those key macro terms actually represent.
One of the most heavily watched data points throughout this pandemic has been unemployment. As we slowly start to see more and more businesses open back up, we see workers who are now able to work from home. To put it simply, the unemployment figures represent those who are actively seeking a job and are not able to find work. In August, the unemployment rate rose from 1.8% to 8.4%, equaling to a total of 13.6 million people still unemployed. The graph below shows the history of the unemployment percentages throughout the past year and as you can see the direct impact to this wild increase was precisely when COVID-19 tore through the U.S.
Consumer Spending During the Pandemic
Consumer spending is another important factor to look at in terms of determining how the economy is perfermorming because consumer spending accounts for 70% of the US’s GDP. Consumer spending is also a good way to gauge how resources are being allocated within the economy. Consumer spending is split up into four resources which are necessaties, durable, non-durable and luzary goods. Necessaities inlcude food and clothing, non-durable includes goods that won’t last longer than 3 years, durable is anything lasting longer than that and luxary being items that are high value goods such as jewlry, sports cars, other non neccesary items that have a very high value.
When we look at consumer spending as whole during the pandemic has actually shown an unusual growth in some areas where in normal recessionary climates, they would be hit the hardest. For instance if you look at the graph the the right we can see that during the pandemic consumer spending has actually gone up in all types of goods have gone up while services and consumption expenditures went down much more than it did during the 2008 recession. The reason for this is while restaurants, travel and entertainment were shut down, people still had income from the massive stimulus the government installed allowed people to still spend their money on goods so help support consumer spending and make up for the contraction in other sectors.
The Importance of the Federal Funds Rate
The federal funds rate is one of the ways our feederal reserve can either theoretically contract or expand the U.S economy through the inflation rate. While the inflation rate is a topic for a different day, one of the important things to go over in regards to the inflation rate is that it can not go too high or get too low it must remain at a certain point that the Federal Reserve seems sufficient. The main way that they do this is by raising and lowering their fund interest rates. The idea is that when the Federal Reserves decides to raise rates the aren’t able to borrow as much as they were before because of the expense and since banks have to keep a mandatory amount of cash in their reserves they then lend out less and raise their interest rates as well. This is an example of a contractionary monetary policy that is highly effective but takes monthes to see the effects. If the situation was flipped then more money would be put in circulation allowing people to borrow and stimulate the economy.
As you can see from the chart, the fund has decreased interest rates dramatically throughout the pandemic shooting them down to their current percentage of 0.09%. As the pandemic rages on the federal reserve has down everything in it’s power in order to keep the economy a float and push for people and businesses to spend more in order to help stabilize a very volatile economy. The Federal Reserve has stated that until signs of a recovering economy are apparent and in abundance they plan on keeping rates at this level for as long as possible.