Another 1.5 million people applied for unemployment insurance (UI) benefits last week. That includes 860,000 people who applied for regular state UI and 659,000 who applied for Pandemic Unemployment Assistance (PUA). PUA is the federal program for workers who are not eligible for regular unemployment insurance, like gig workers. It provides up to 39 weeks of benefits, but it is set to expire at the end of this year.

Last week was the 26th week in a row total initial claims were far greater than the worst week of the Great Recession. If you restrict to regular state claims (because we didn’t have PUA in the Great Recession), claims are still greater than the third-worst week of the Great Recession.

Most states provide 26 weeks of regular state benefits. After an individual exhausts those benefits, they can move onto Pandemic Emergency Unemployment Compensation (PEUC), which is an additional 13 weeks of benefits that is available only to people who were on regular state UI. (A reminder: PEUC is different from Pandemic Unemployment Compensation, or PUC, the now-expired $600 additional weekly benefit, which anyone on any UI program had been eligible for.)

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Yesterday’s Census Bureau report on 2019 income levels showed significant gains in median household income in 2019, but it doesn’t necessarily tell the whole story. First, those gains may not be as strong as initially reported given survey nonresponse bias, which we explain below. Second, household incomes in 2019 provide little information on what is currently happening in the U.S. economy because of the COVID-19 pandemic. Third, as a measure of how strong the economy can get, there is still room for improvement in terms of overall growth as well as in narrowing economic inequality and closing racial gaps.

According to the Census Bureau’s latest report, median household incomes rose 6.8% between 2018 and 2019. Ignoring the nonresponse concerns and taking this at face value, this represents a significant step towards reclaiming the lost decade of income growth caused by the Great Recession. The economy continued to grow in 2019 and the unemployment rate averaged 3.7% over the year. Increasing earnings as well as slowing inflation between 2018 and 2019 contributed to significant gains in household incomes.

And yet there’s reason to put a big old asterisk on the data for 2019. Although the data release includes information about 2019 only, the data was collected between February and April of this year, right as the pandemic began to spread rapidly and most of the country was locked down. This Census paper discusses some of the impacts the pandemic had on data collection efforts. Overall, nonresponse increased significantly and was more strongly associated with income than in previous years, with nonresponse decreasing as income increases, meaning that income data could be skewed higher than it actually was. Respondents were also less likely to be Black and more likely to be white or Hispanic. Using that information, researchers at the Census provided new estimates for household income over the last four years, provided as a separate working paper and not adjusted in the official Census report. Figure A provides some perspective on those changes along with other data changes in the last several years. Solid lines are reported CPS ASEC data; dashed lines prior to 2013 denote historical values imputed by applying the redesigned income methodology in 2013 to past trends; and the dotted lines since 2016 represent the new imputed values from the Census working paper on nonresponse rates.

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In March and April of this year, the economy lost an unprecedented 22.1 million jobs. From May to August, 10.6 million of these jobs returned. But nobody should take excess comfort in the fast pace of job growth in those months. It was widely expected that the first half of jobs lost due to the COVID-19-driven shutdowns were going to be relatively easy to get back. But even with the jobs gained since April, the economy remains 11.5 million jobs below its pre-pandemic level in February, and the low-hanging fruit have been largely plucked. One of the key factors that will radically slow the pace of job growth in coming months is the looming state and local fiscal crisis. Using data from the recovery from the Great Recession, we simply show how state and local austerity and job loss can be a lagging indicator, putting severe downward pressure on growth even years after the official recession ends. We find:

• From the beginning of the Great Recession in January 2008 to the trough of state and local government employment, 566,000 state and local government jobs were lost.
• The state and local employment trough occurred in July 2013, more than five-and-a-half years after the official start of the Great Recession.
• During the official recession from January 2008 to June 2009, state and local governments actually added 142,000 jobs.
• In the first year of recovery (from June 2009 to June 2010), the state and local sector lost 215,000 jobs. The 73,000 jobs lost between December 2007 and June 2010 constituted just 0.3% of state and local employment. Even a year after the recession officially ended, cuts in the state and local sector were greatly softened by the substantial federal fiscal aid included in the American Relief and Recovery Act (ARRA).
• In the second year of recovery (from June 2010 to June 2011), the state and local sector lost 368,000 jobs. Job losses continued through July 2013, with another 250,000 jobs lost.
• State and local governments have already lost jobs during this contraction and are recovering more slowly than the private sector. Without federal aid now, more jobs—in both the public and private sectors—will be lost down the line.

These data are presented in Figure A. Figure B presents job losses for state and local and private-sector jobs, both indexed to their December 2007 business cycle peak. The upshot of this analysis for today’s policymakers is clear: The severe blow to state and local budgets caused by the coronavirus shock is going to drag on growth for years to come absent bold action from federal policymakers. In the case of the Great Recession, the combined effect of job cuts and cuts to other state and local spending delayed a full recovery to pre–Great Recession unemployment rates by more than four years. The lessons could not be more clear: Without substantial federal aid to state and local governments—and soon—our near-term economic future will be substantially worse.

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Former Federal Reserve Chair Alan Greenspan told CNBC last week that his “biggest concern” in regard to the economic outlook included too-high budget deficits. This concern is both completely misplaced and widely expressed.

We have already addressed a number of FAQs about deficits and debt. Besides those FAQs, however, another common question people ask is, “Where is the money the government borrows coming from?” Related to this fear is concern that the source of borrowing (whatever it is) might dry up at any time, and the result could be spiking interest rates that force firms to cut back on investment in productive private-sector investments, which in turn would slow economic growth in the future.

The short answers to these concerns are pretty simple: The money the government is borrowing comes mostly from ourselves, and that’s a key reason why we can be sure that interest rates won’t start rising unless and until we have reached a full recovery.

Below, we’ll explain what it means that federal budget deficits mostly amount to U.S. households borrowing from themselves.

In March and April this year, whole industries in which U.S. consumers spend money were shut down (restaurants, hotels, air travel, gyms, etc.). While there are some substitutes for some of this spending (when restaurants close, people tend to spend more money on groceries, for example), these offsets are nowhere near one-for-one. This means that as the places where people spend lots of money closed, households spent less. Because one person’s spending is another person’s income, as household consumption spending collapsed, market-based incomes collapsed in turn (i.e., workers in COVID-19-shutdown sectors stopped getting paychecks and business owners stopped earning profits).

Absent any policy response, a horrific vicious cycle would have started. Laid-off restaurant and airline workers would have cut back spending on everything—including spending in sectors that COVID-19 had not directly shut down. At that point, workers in non-coronavirus-affected sectors would have seen cuts to their incomes and reduced their own spending—and the downward cycle would continue. The few months of significant economic support provided by the CARES Act starting in April didn’t just provide vital income support to laid-off workers—it also broke this vicious cycle and put up a firewall between the coronavirus-driven shutdowns and the rest of the economy.

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On Tuesday, the Census Bureau will release its annual data on earnings, incomes, poverty, and health insurance coverage for 2019. There are a number of important things to know about this data release, including:

• These data report household incomes from 2019, not 2020. In short, this data will be silent on what has happened since the pandemic and ensuing recession hit the United States and resulted in widespread job loss and health devastation. It will, however, provide some insights into the labor market as we entered the current recession, which magnified deeply entrenched economic inequalities and racial and ethnic disparities.
• The data on incomes in 2019 was collected in February, March, and April of 2020. Its collection was likely extremely hampered by the COVID-19 pandemic. This could make it less reliable than previous year’s releases, and biases could be particularly large for low-income households.
• The data will give us insight into how evenly (or unevenly) economic growth has been distributed across U.S. households in 2019. Other data sources that are released more than once a year too often provide only averages or aggregates into what is happening in a particular month—but next week’s Census release gives a comprehensive picture of how the U.S. economy was working for typical households over the full year, including individual-, family-, and household-level data on annual earnings and incomes.
• The data are likely to show strong, relatively widespread income growth in 2019. Policymakers should take heed of this, as the root of this growth was a labor market approaching full employment, with the unemployment rate below 4% for the entire year.

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Last week, total initial unemployment insurance (UI) claims rose for the fourth straight week, from 1.6 million to 1.7 million. Of last week’s 1.7 million, 884,000 applied for regular state UI and 839,000 applied for Pandemic Unemployment Assistance (PUA). A reminder: Pandemic Unemployment Assistance (PUA) is the federal program for workers who are not eligible for regular unemployment insurance, like gig workers. It provides up to 39 weeks of benefits and expires at the end of this year.

Last week was the 25th week in a row total initial claims were far greater than the worst week of the Great Recession. If you restrict to regular state claims (because we didn’t have PUA in the Great Recession), claims are still greater than the second-worst week of the Great Recession. (Remember that when looking back farther than two weeks, you must compare not-seasonally-adjusted data, because DOL changed—improved—the way they do seasonal adjustments starting with last week’s release, but they unfortunately did not correct the earlier data.)

Most states provide 26 weeks of regular state benefits. After an individual exhausts those benefits, they can move onto Pandemic Emergency Unemployment Compensation (PEUC), which is an additional 13 weeks of benefits that is available only to people who were on regular state UI. Given that continuing claims for regular state benefits have been elevated since the third week in March, we should begin to see PEUC spike up dramatically soon (starting around the week ending September 19—however, because of reporting delays for PEUC, we won’t actually get PEUC data from September 19 until October 8). It is also important to remember that people haven’t just lost their jobs. An estimated 12 million workers and their family members have lost employer-provided health insurance due to COVID-19.

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