MNI INTERVIEW: US Slump Worsens On No Fiscal Aid: Ex-BLS Head

The U.S. economy faces an even deeper downturn with a lack of fiscal stimulus cutting into consumer and business sentiment, ex-BLS Commissioner Erica Groshen told MNI.

"The recessionary dynamic is now taking hold--the business cycle is actually getting worse right now," Groshen, who is also a former New York Fed staffer, said in an interview.

"This recessionary spiral is what happens when people lose confidence in the future, so you get cuts in spending and investment and a whole bunch of things that feed on each other until we hit bottom in some way--or policy helps stimulate the economy back in some way," she said.

The lack of a second major fiscal package adds to troubles still posed by the pandemic, likely undermining strong signs of a third-quarter rebound from the second quarter's historic slump, she said. That touches not only households and business owners but state and city governments, she said, echoing concerns expressed by the Fed about layoffs at local agencies providing basic services.

Groshen fears progress in the labor market may be hampered by the growing number of workers whose temporary layoffs have become permanent. Unemployment has come back sharply from a historic peak of 14.7% but remains high at 7.9%, a number that itself masks deeper weakness in labor market conditions and wages.

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She estimates there are 7.5 million workers who are neither employed nor still connected to their employer, or who have given up looking for work. The longer workers are out of a job, the harder it usually is for them to get back to work.

"I worry a lot about the people who are going to spend a lot of time out of the labor force because of caring for a loved one or because they themselves have an underlying condition that wasn't an issue before," the pandemic, Groshen said.

The first CARES Act was more "relief" from the initial shock of the pandemic, and Congress has yet to deliver more traditional stimulus to pull the economy out of recession, she said.

"This is a textbook situation where fiscal policy is called for," she said. "Pandemics are expensive. We have a big discount in the form of low interest rates."