OCU economist says unemployment could exceed 10% soon

By:  Steve Metzer The Journal Record April 1, 2020

OKLAHOMA CITY – Severe distress in the energy industry and the COVID-19 pandemic could combine to deal Oklahoma more economic pain than was suffered during the Great Recession, an economics professor at Oklahoma City University believes.

Jonathan Willner said it is probable that Oklahoma’s unemployment rate will soon exceed 10%. That would surpass the worst rate recorded during the historic downturn of more than a decade ago. This week, analysts at banking giant Goldman Sachs speculated that the nation’s jobless rate could approach 15% by midyear.

By comparison, 25% unemployment was recorded during the Great Depression of the 1930s.

The phrase “uncharted territory” has been used to describe the country’s current situation, triggered by the rapid and continuing spread of COVID-19 and its virtual shutdown of the economy. Willner said many unknown factors make it impossible to predict how deep a projected national recession will be or how long it might last.

What is known for sure is that the oil and gas industry, which traditionally generates more wealth in Oklahoma than any other, was shedding jobs even before the pandemic took hold. Willner said that resulted from overproduction worldwide and a supply glut, which caused the price of oil to drop by two-thirds, from around $60 per barrel in January to the current $20 or so. Drilling rigs have been idled. Baker Hughes Co. reported 39 active rigs in Oklahoma on March 27 as compared to 115 reported a little more than a year before. Associated well service jobs also have been lost along with supply chain jobs and many others, Willner said.

The pandemic made the outlook far worse.

Willner said the Great Depression, which saw the pain of high, long-term unemployment compounded by the Dust Bowl and the absence of a “social safety net,” should remain as the worst economic disaster in history.

“This, unless we begin to snap out of it soon, could potentially be a depression, because so many would lose so much in the absence of support,” he said. “Fortunately, the government has done yeoman’s work in trying to ensure that that does not happen.”

He said a massive federal relief effort, to exceed $2.2 trillion, will help to keep money circulating in the economy, though he said people will likely spend the money they have more on essentials like groceries and utilities than on durables like furniture or vehicles. Most adults in Oklahoma will receive direct benefit payments of $1,200, with $500 more added for each dependent child. Those who lose jobs will receive enhanced unemployment benefits. Small and midsized businesses, responsible for the lion’s share of job creation, also will receive much-needed assistance.

Whether that’s enough or more relief might be needed in the future depends on the coronavirus, Willner said.

“The national economy should start to rebound almost immediately when people are able to go back to work,” he said.

It may take a while, however, for a recovery to take hold and for economic momentum to begin building again. The experts at Goldman Sachs projected negative 9% growth for the nation’s gross domestic product in the current quarter, followed by a contraction potentially of 34% in the second quarter to be followed by potential gains in the third.

When the nation and world begin to move again, demand for oil and gas will rise. Prices, then, also should rise. Until that happens, Willner said Oklahoma’s energy industry may remain in recession.

It’s worth noting that at the conclusion of previous recessions the nation has often returned to GNP growth before Oklahoma, and widespread job creation both in the nation and state has typically lagged behind a return to GNP growth. On a technical basis, the Great Recession ended with a return to GNP growth in the second half of 2009. However, the unemployment rate did not peak at 10% until four months later. Moreover, unemployment remained stuck at or above 9% for two more years and didn’t return to the prerecession rate of 5% or below until September 2015. Median U.S. household income fell nearly 10% in the aftermath of the Great Recession, a direct result of unemployment being nearly double the historical average.

Willner said his advice for elected officials would be to try to spare programs for people as they begin crafting budgets in the near future, facing challenges of severely declining tax revenues.

“Don’t cut spending on anything dealing with human beings,” he said, “and don’t raise taxes.”