South Carolina Data Trends
The line graph above plots the monthly, seasonally adjusted unemployment rates from the Great Recession and the current COVID-19 Recession side-by-side so we can compare both the scale and duration of the peaks (to date). The vertical (y) axis shows unemployment rate, by percentage, and the horizontal (x) axis shows the months passed from the pre-recession low unemployment rate, through the peak high unemployment rate, back to the previous pre-recession low. Obviously, for the current COVID-19 unemployment spike, the journey from peak to a full recovery of the pre-pandemic low unemployment rate remains incomplete.
The differences between the current COVID-19 recovery and our recovery from the Great Recession are striking and immediately apparent and, of course, reflect the causes for each. The Great Recession took the path that economists and researchers are used to witnessing: slow and steady worsening of the unemployment rate over months, with an even longer return from the peak to pre-recession lows. During the Great Recession, it took nearly 2 years (22 months) to traverse the ground between the pre-recession low unemployment rate of 5.6% to the peak rate of 11.7% and over 3 times as long (69 months) to move from the peak rate of 11.7% back to the pre-recession low of 5.6%.
The COVID-19 spike in unemployment rates, however, with the almost over-night shutdown of vast swathes of the economy in response to the threat of the virus, looks nothing like recessions of the past. Even if we extend the path to the peak back to September of 2019, the first month that South Carolina hit its pre-COVID-19 unemployment rate low of 2.4%, the spike from low to the high rate of 12.8% (April 2020) took only 7 months. The recovery — though incomplete — has been equally staggering. Within only 5 months of the peak, South Carolina dropped nearly 75% of its pandemic unemployment rate high, sitting at 5.1% in September of 2020.
Given the rapid recovery to date and the existence now of 5 months’ worth of post-peak rate data, we wanted to model a few potential alternative paths to unemployment rate recovery in the coming months. The factors that go into a full recovery are far too many to list in the space allotted here, but let’s start with the caveat that a full predictive model of recovery is beyond the scope of this piece. So many factors — some economic, some political, some individual — combine to shape a state’s unemployment rate that any attempt to predict the future almost always ends in folly. With full recognition of that fact, and with the acknowledgment of our belief that our readers will take these alternatives in the vein they were intended — as an incentive for further discussion, thought, and consideration (and decidedly not as a prediction of the future), we mapped three alternatives to recapturing previous lows in the recovery line graph.
The first alternative — marked with a dark blue dashed line — shows what we hope to be the most likely scenario: Linear Recovery. Following the peak of 12.8% in April and the hovering rate of 12.4% in May, we’ve seen the rate fall steadily at a decelerating linear pace. That’s to say it keeps declining, but the rate of the month-over-month decline is slowing in a steady, but predictable manner. This is as we would expect, because as we get closer and closer to previous unemployment rate lows, it becomes harder and harder to lose the last few percentage points; the unemployment rate will continue to improve, but it will fall more slowly as the rate continues to drop. Under this scenario, we could expect a return to the previous low unemployment rate of 2.4% around May 2021, just in time for tourist season.
The second alternative — marked with a red dotted line — shows what the recovery would look like if it followed the path of our recovery from the Great Recession. We have no reason, necessarily, to believe that the current COVID-19 recovery would slow to a pace comparable to that of the Great Recession (where it took nearly 3.5 times longer to recover the post-recession low than it took to reach the recession peak in unemployment rate), but should this recovery take the form of what we witnessed in the Great Recession, we could expect a return to our prior low unemployment rate of 2.4% sometime around August 2022.
Finally, the third alternative — and the one we hope to avoid — is represented by the dotted green line. This “M-type” (or sometimes referred to as a “K-type”) recovery represents what a second wave of COVID-19 shutdowns might look like. Controlling for the current predicted rate of recovery by December, this model anticipates a second spike of COVID-19 and its affiliated impact on the economy sometime in the winter of 2021. If the spike mirrors the magnitude of the first one — and started from a higher unemployment rate than the 2.4% that preceded the last spike, this model posits a new all-time high of 16% followed by a rapid, linear recovery, to be completed sometime around February of 2022.