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The May U.S. jobless rate fell to 13.3% and employers added 2.5 million jobs, blowing Wall Street expectations out of the water: Economists had forecast a loss of 8.3 million jobs and a 19.5% unemployment rate. Jeff Sparshott and Greg Ip here to take you through the numbers.
Nasty, Brutish—but Very Short
Recessions end when the economy begins to grow, no matter how slowly. So assuming the slump that accompanied the Covid-19 pandemic is eventually designated a recession, it probably ended in April since employment grew a surprising 2% in May. That would make it both the deepest and, at two months, the shortest recession since the 1930s. The downturn wasn’t triggered by high interest rates or a financial crisis but a natural disaster. For the slump to end, the disaster had to ease, and it has: Lockdowns are being lifted and fatalities are falling. Recoveries from earthquakes and hurricanes are usually a “V”, complete after just a few months. Given the depth of this hole and the uncertainty over the pandemic, a V still seems unlikely, but the odds have nonetheless improved. —Greg Ip
KEY THEMES
Sign We’ve Turned
The jobs data have been distorted by classification problems: workers wrongly classified as employed or out of the labor force, bankrupt firms that weren’t captured by the payroll survey. To avoid those problems, look at the employment to population ratio: It plummeted from 61.1% in February to 51.3% in April, then ticked up to 52.8% in May. That’s a pretty clean signal that the labor market has turned. —Greg Ip
Adjusted, an Even Bigger Fall in Unemployment
Workers on temporary furlough should consider themselves unemployed when surveyed by the Bureau of Labor Statistics, but many said they were absent from work for other reasons. The BLS said without that misclassification the unemployment rate would have been almost five percentage points higher in April and three points higher in May. Adjusting for both, the unemployment rate dropped 3.4 percentage points between April and May, versus the 1.4-point drop in the official figures.
Even with the classification difficulties, the high number of absences suggests people are on temporary, unpaid leave—and likely to be recalled. “It meshes with other data from the report that suggest directly affected sectors are calling back employees after lockdowns have been eased or they’ve received PPP loans. Or perhaps both,” said Indeed Hiring Lab’s Nick Bunker.
Who’s Going Back to Work?
Cooks, bartenders, waiters and dishwashers. Employment in food services and drinking places rose by 1.4 million, accounting for about half of the gain in total nonfarm employment. Construction, health care and retail also posted big gains.
The Not-So-Good Stuff
May’s gain only partly retraces the 22.1 million combined jobs lost in March and April. And one thing to keep in mind: Friday’s jobs report offers a labor-market snapshot from mid-May, when the government conducted its monthly survey of households and businesses. Fresher data suggest job losses continued to subside, though the labor market likely suffered another setback from unrest and looting after George Floyd was killed in police custody May 25 in Minneapolis.
Labor-market damage has fallen especially hard on women, Hispanics and African-Americans.
A broader measure of unemployment—which includes part-time workers and those who gave up looking for jobs—remained elevated at 21.2%. Many workers had their hours cut and are working part time rather than full.
And the number of permanent layoffs ticked higher for the third straight month, suggesting some job destruction. But most layoffs remain temporary, offering hope that most of the workers hit by coronavirus-related shutdowns will be back to work in the coming months.
You Heard it Here First
Careful readers of The Wall Street Journal’s economics coverage would not be surprised the economy is turning. More than three weeks ago, on May 13, Real Time Economics found “signs we may be hitting bottom.” On May 16, chief economics commentator Greg Ip, citing private data that had begun to turn up in April, wrote: “There are signs the economic contraction caused by the pandemic, the steepest since the Great Depression, has bottomed out and a tentative recovery may be under way… [T]his economic contraction could go on record as the deepest since the 1930s, yet also the shortest, lasting as little as two or three months.” On May 25, Harriet Torry and Josh Mitchell reported: “For the first time since the pandemic forced widespread U.S. business closures in March, it appears conditions in some corners of the economy aren’t getting worse, and might even be improving.” Stay tuned as the Journal and Real Time Economics continue to deliver up-to-the-moment analysis of the economy’s progress in the months ahead.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ECONOMISTS ARE SAYING
“The unemployment rate will end the year at about 10% and the U.S will not return to its pre-Covid-19 employment level until the end of 2022.” —Sophia Koropeckyj, Moody’s Analytics
“With more states moving to loosen their lockdowns in the coming weeks, particularly in the populous Northeast, employment looks set to continue rebounding in June and beyond, although we still think it will be a long time before the labour market is anywhere near back to its pre-virus state.” —Michael Pearce, Capital Economics
“We are still 13% below the level of employment pre-crisis, and the unemployment rate of 13.3% is the second highest level since the Great Depression. This still represents an unbelievable amount of distress for almost 21 million households across the country.” —Mike Fratantoni, Mortgage Bankers Association
“Today’s report gives some hope that we are seeing the first green shoots of recovery as states start to reopen.” —Daniel Zhao, Glassdoor
“It is very encouraging that things started to pick up sooner than expected but…there is still a very long way to go before things start to look normal.” —Eric Winograd, AllianceBernstein
“The path ahead may still be bumpy, but the May jobs report provides additional evidence that the worst may be behind us and that the recovery appears to be under way.” —Jim Baird, Plante Moran
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