WASHINGTON- The head of the International Monetary Fund warned that the United States faced a possible “dangerous wave” of bankruptcies and unemployment if it did not maintain fiscal support until the coronavirus heath crisis ended.
IMF Managing Director Kristalina Georgieva told reporters the United States, the world’s biggest economy, had scope to take further action and doing so would provide positive spillover effects for the global economy.
Asked if she supported President Joe Biden’s $1.9 trillion relief plan, Georgieva said the IMF supported the plan’s focus on vaccinations, health care, support for the unemployed and aid to state and local governments.
Despite the economy’s nascent recovery, Georgieva said risks remained, especially if support was not maintained long enough.
“There is still that danger that if support is not sustained until we have a durable exit from the health crisis, there could be a dangerous wave of bankruptcies and unemployment,” she said.
In 2020, she said US bankruptcies were lower than average in normal years due to fiscal support and it was important to continue to calibrate that support in 2021 while preparing carefully for the moment when some businesses did not survive “We want to see careful,well-calibrated policy action. We are keen for policy support to be there,” she said, adding, “Great care is necessary so we don’t find ourselves in a difficult situation.”
Georgieva acknowledged concerns raised by former Treasury Secretary Lawrence Summers about a possible overheating of the US economy, but said she was confident that new Treasury Secretary Janet Yellen would keep a careful eye on those risks.
“Indeed we have to be watchful of risks, but we have the best possible Secretary of the Treasury for this potential risk, she said, “And I’m confident that there will be a lot of attention being paid on anticipating and, if necessary, taking appropriate action to address these risks.”
Last month, manufacturing payrolls decreased by 10,000 jobs, while employment at construction sites dropped by 3,000.
Retailers shed 38,000 jobs and healthcare employment declined by 30,000. The transportation and warehousing industry lost 28,000 jobs. There were 61,000 job losses in the leisure and hospitality sector.
But employment in professional and business services increased by 97,000, with temporary hiring accounting for nearly all the gains.
Government payrolls rose by 43,000 jobs, lifted by state and local government education.
Though the unemployment rate dropped to 6.3 percent in January from 6.7 percent in December, that was because many people stopped looking for work.
The jobless rate was also pulled down by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, it would have been 6.9 percent.
Just over 4 million Americans have been unemployed for more than six weeks, accounting for 39.5 percent of the jobless in January. The ranks of those who have permanently lost their jobs increased to 3.5 million from 3.4 million in December. These people could struggle to find work or get higher pay the longer they remain unemployed.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, dipped to 61.4 percent from 61.5 percent in December. The participation rate has declined significantly during the pandemic, with women accounting for the biggest share of dropouts.
That has been attributed to difficulties securing childcare as many schools remain closed for in-person learning.
“There is still an enormous amount of work to do to get back to maximum employment,” said Chris Low, chief economist at FHN Financial in New York.
The report also underscored the so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out. The continued decimation of lower-paying jobs boosted annual wage growth to 5.4 percent from 5.1 percent in December. The average workweek increased to 35 hours from 34.7 hours.
“Businesses and the administration will need to work together to implement policies and programs which close this diverging gap and ensure displaced Americans can return to the workforce,” said Karen Fichuk, Randstad North America chief executive officer.