A shockingly positive May jobs report has raised hopes of a faster recovery from the coronavirus-induced recession.
Economists had expected the unemployment rate to rise from a post-World War II record of 14.7 percent in April to Great Depression-era levels of 20 percent or higher. Instead, the economy added 2.5 million jobs and the unemployment rate dropped to 13.3 percent.
“It indicates the recession is over and the recovery has begun,” said Mark Zandi, chief economist of Moody’s Analytics.
President Trump, who has built his case for reelection around the economy, was ecstatic over the news, giving a hastily scheduled Rose Garden speech in which he touted the numbers as “a big step in our comeback.”
The stunning gains were mainly due to the return of 2.7 million workers from temporary layoffs or furloughs, half of them reporting back to restaurants, bars and other businesses in the leisure and hospitality industry. The survey period for the May report came shortly after more than half of states began relaxing business restrictions, catching the first wave of reopenings.
Keeping workers connected to their employers is crucial to a quick recovery, and experts see the swift end of some temporary layoffs as a strong start.
Even so, 15.3 million workers haven’t returned from layoffs they believe will be temporary and it remains unclear how many of those temporary job losses will become permanent.
The number of permanent job losses in the U.S. also increased by 295,000 in May, raising questions about the durability of the rebound. And the Bureau of Labor Statistics said that the unemployment rate would have been roughly 3 percentage points higher if not for an error in how some furloughed workers were classified.
Still, the swift move in the right direction spurred hope among experts, investors and politicians seeking reelection.
“This is better than a ‘V,’ this is a rocket ship,” Trump said, referring to a speedy, V-shaped recovery that quickly erases the losses of a recession.
Stock markets skyrocketed following the news, with the Dow Jones Industrial Average breaking 27,000, the S&P 500 hovering at just 5 percent below its February peak, and the Nasdaq composite completely erasing the losses from the pandemic, hitting a new record high.
“I had expected that the job losses would continue and that the unemployment rate would be higher, so I was surprised,” said Erica Groshen of Cornell University’s School of Industrial and Labor Relations, a former commissioner of the U.S. Bureau of Labor Statistics.
For weeks, data on initial unemployment claims has shown millions of new people applying for benefits, adding to the sense of growing joblessness.
“I think one way to understand this is that we’re going to have a lot of people who are on Unemployment Insurance for a fairly short time. So maybe we had a kind of churning, where people who got on it early on the process are already off it,” Groshen said.
The data point to a quicker bounce back in states that began opening up their economies by early May, when the survey was taken. The report shows stark drops in people who were temporarily laid off and those who had dropped out of the labor force altogether, though the number of people working part-time didn’t see much of a change.
But Groshen said another important factor should not be overlooked.
“For me the main takeaway is actually that the policy steps that were taken were quite effective,” she said.
Congress has passed some $3.6 trillion in emergency relief to combat the coronavirus, including hundreds of billions in expanded unemployment insurance, stimulus checks, forgivable loans to small businesses that kept workers on the books, money to support potential loss-lending from the Federal Reserve, and some aid to state and local government
Democrats, who have passed another $3 trillion package in the House, fretted that the early turnaround would relieve pressure to pass further emergency funding at a critical moment.
“My worry is that these numbers will make the president, the Republican Senate, complacent,” said Senate Minority Leader Charles Schumer (D-N.Y.).
“The stimulus helped get the economy going. But we need a lot more or we could go right back into the ditch with unemployment expiring,” he added.
Benefits such as expanded unemployment are set to expire, and state and local governments, reeling from the pandemic response, are preparing to publish their annual budgets without additional federal aid.
Eviction restrictions are also set to expire soon.
“With more than 100,000 Americans tragically dead, 21 million still out of work and state and local budgets collapsing, now is the worst possible moment to take our foot off the gas,” Speaker Nancy Pelosi (D-Calif.) said in response to the report.
Some conservative groups have already begun calling for a halt to further spending plans.
“While the crisis is not over, Americans need employment opportunities, not unemployment incentives,” said Rachel Greszler, a research fellow at the Heritage Foundation.
“Congress should slow down, learn from past stimulus failures, and fix policy mistakes that discourage work and economic recovery,” she said.
The issue of $600 in additional weekly unemployment insurance is a particular sticking point, because it pushes unemployment pay higher than salaries for many low-income workers, which conservatives fear makes a return to work during the pandemic less attractive.
But economists have warned that the surprisingly good jobs report should not give people the false impression that the economy is on a fast road to recovery.
For one, some groups are far worse off. Black unemployment remained at 16.8 percent, a decadelong high.
And the 13.3 percent unemployment rate is still one-third higher than the worst month of the Great Recession. Even a quick recovery of the worst losses doesn’t mean the economy will return to its pre-pandemic strength any time soon.
“I don’t think it changes the trajectory of the recovery at all. After this bounce we get from business reopening, it’s going to be a slog,” said Zandi, who still expects unemployment to remain in double digits into 2021.
“I think a ‘V’ is not likely, particularly if lawmakers don’t provide more support,” he added.
Economist Michael D. Farren, of the Mercatus Center at George Mason University, notes that the topline unemployment figures hide some more alarming news.
“The headline unemployment rate will very likely be under 10 percent by the end of the year. The question is whether the pre-pandemic equivalent will be under 10 percent,” he said.
The Labor Department itself noted that millions of workers were likely misclassified in both April and May surveys, in part due to the unusual circumstances surrounding the pandemic. Without that misclassification, the unemployment rate would be in the 16 percent range.
But the central unemployment figure also discounts people who have dropped out of the labor force, meaning they are not actively looking for jobs. From February to April, some 8 million people dropped out of the labor force, a figure that fell to 6.7 million in May.
“Those people don’t have jobs anymore, but they don’t meet the definitional requirement to count as unemployed,” he said.
A more reasonable comparison with February’s 3.5 percent rate, he said, would be closer to 19 percent.
The dynamics could make for some unusual data going forward, as people start looking for work again but may have trouble finding it.
“I would not be surprised to see a spike in the unemployment rate in June, even though that actually indicates better things about the economy,” Farren said.
Zandi warned that the numbers could be revised down in future months, as more data comes in.
“This is exactly what happened in the financial crisis,” Zandi said.
“We thought the jobs numbers were bad, but we didn’t know how bad until we got those revisions,” he added.