Trouncing Expectations by 10 Million Jobs, the Labor Market’s Comeback Has Begun
Tuesday, June 09, 2020
The Bureau of Labor Statistics’ May Employment Situation report shows that the United States economy added 2.5 million jobs last month, and the unemployment rate fell from 14.7% to 13.3%.
Employment increased significantly in leisure and hospitality (1.2 million), construction (464,000), education and health services (424,000), retail trade (368,000), and manufacturing (225,000). These job gains surprised forecasters, given many states were only beginning to reopen their economies during the reports’ survey reference periods (the week/pay period that includes May 12). The median of all private-sector forecasts predicted 7.5 million job losses in May and an unemployment rate of 19.2%.
Rapid job growth as the coronavirus is contained and States open up should not come as a surprise. A poll conducted from April 27 through May 4 asked laid-off workers if they expected to be rehired by their most recent employers after State stay-at-home orders are lifted. The vast majority of laid-off workers (77%) said it was likely that they would be rehired by their most recent employers. This survey result is echoed in May’s employment data, just as CEA explained it was in April’s data.
There were 15.3 million people on temporary layoff in May, in addition to an estimated 4.9 million people who had temporarily lost their jobs but were counted as employed but “not at work for other reasons.” Including all those who were potentially on temporary layoff, 78.2% of unemployed persons in May were on temporary layoff—well above the 13.3% average over the 12 months before this March.
Beyond workers remaining attached to their employers, another sign that job growth will continue is May’s jump in average weekly hours—indicating pent-up demand. Increasing hours can be a sign that employers need to hire more workers to meet this demand. For all private-sector employees, average weekly hours increased by 0.5 to 34.7 hours—the highest level since the series began in 2006. For production and non-supervisory employees, this measure increased by 0.6 to 34.1 hours—the highest level in 19 years.
Further job losses were expected in the May report because initial Unemployment Insurance (UI) claims, though falling, remain elevated. Yesterday, the Department of Labor reported that 1.9 million people filed initial UI claims in the week ending May 30. Even with 4.6 million initial claims over the two weeks ending May 23, the number of people receiving UI, as measured by continuing claims, declined by 3.4 million over that time. As the figure below shows, weekly continuing claims have tracked the number of unemployed persons reported in the monthly Employment Situation report, assuming a constant rate of change between the months.
By May 23, the gap between weekly continuing claims and cumulative initial UI claims since the beginning of COVID-related job losses had grown to 19.6 million. Some of this difference may be accounted for by individuals applying for traditional UI instead of the new Pandemic Unemployment Assistance program, either by mistake or because of State requirements. However, the widening gap between initial UI claims and continuing claims, along with the 2.5 million jobs added in May, show that laid off Americans are returning to work.
For workers to count as unemployed, they must have searched for work during the last four weeks or be on temporary layoff. If neither of these apply, the worker is counted as out of the labor force. States waived the traditional work search requirement for UI, so some workers on UI who do not expect to be called back to work may not count as unemployed. Yet the labor market flows for May show that there was not an elevated level of workers dropping out of the labor force directly. Flows from employment to not in the labor force were 4.4 million from April to May, in line with the average over the 12 months before this March (4.7 million). Furthermore, from April to May, 2.8 million more people moved from unemployment to employment than moved from employment to unemployment.
Other, more rapid indicators of labor market strength show the economic recovery has accelerated since mid-May. Gasoline demand has recovered over half of the loss from its pandemic-low, indicating Americans are driving more. Workplace visits are up more than 40% from its pandemic-low. And, as the figure below shows, 73% of small businesses are now open—up from its pandemic-low of 52% right before the April report’s reference periods.
While May’s jobs report is unquestionably positive news for America’s economic comeback, there is still much more room to grow. Three months ago in February, the unemployment rate was 9.8 percentage points lower (3.5%) and there were 19.6 million more jobs. But the economy beating expectations by 10 million jobs and the unemployment rate falling instead of rising show that the transition back to strong economic growth began earlier than many expected. With more States easing restrictions on work, strong attachments between laid off workers and their employers, and growing labor demand, there is much reason to expect the American economy to add even more jobs in June.
Category: Business News, Economic News