America’s labor market defied forecasts for a Depression-style surge in unemployment, signaling the economy is picking up faster than anticipated from the coronavirus-inflicted recession amid reopenings and government stimulus.
A broad gauge of payrolls rose by 2.5 million in May, trouncing forecasts for a sharp decline following a 20.7 million tumble the prior month that was the largest in records back to 1939, according to Labor Department data Friday. The jobless rate fell to 13.3 per cent from 14.7 per cent.
U.S. stocks jumped after the report with the S&P 500 up 2.7 per cent, adding to weeks of gains in equities since mid-March. The figures were so astonishing that President Donald Trump held a news conference, where he called the numbers “outstanding” and predicted further improvement before he’s up for re-election in November.
While the overall picture improved, there are still major caveats: 21 million Americans remain unemployed with a jobless rate higher than any other time since 1940, indicating a full recovery remains far off with many likely to suffer for some time.
And the return to work is uneven, with unemployment ticking up among African Americans to 16.8 per cent, matching the highest since 1984, even as unemployment rates declined among white and Hispanic Americans. That comes amid nationwide protests over police mistreatment of African-Americans, which have drawn renewed attention to race-based inequality.
The unexpected improvement wasn’t limited to the U.S. figures. North of the border, Canadian employment rose 290,000 in May, compared with forecasts of a 500,000 slump, its statistics office reported Friday.
The data show a U.S. economy pulling back from the brink as states relax restrictions and businesses bring back staff amid record government stimulus, including loans that were contingent on rehiring workers. At the same time, the lack of an effective treatment for COVID-19 -- which has already killed more than 100,000 in the U.S. -- means infections may persist and possibly surge in a second wave, with the potential to further shake the labor market and extend the economic weakness.
“Clearly the labor market turned the corner in late April, early May. We’re seeing a rebound of labor-market activity,” said Michael Englund, chief economist at Action Economics, who had estimated a payrolls decline of 2 million, the second-closest estimate. He expects June economic and labor-market data to show further improvements and plans to revise up his forecast for second-quarter gross domestic product.
The latest figures may give a boost to Trump, who has fallen behind Democratic challenger Joe Biden in polls amid dissatisfaction with the president’s response to the pandemic and the death of George Floyd. The numbers could also reduce pressure on policy for another round of fiscal support, with Democrats and Republicans at odds over the timing and scope of new measures following record aid approved by Congress.
“The only thing that can stop us is bad policy, like raising taxes and the Green New Deal,” Trump said Friday. He also said there should be more steps to support the economy.
Economist forecasts had called for a decline of 7.5 million in payrolls and a jump in the unemployment rate to 19 per cent. No one in Bloomberg’s survey had projected improvement in either figure.
One caveat noted by the U.S. Labor Department: the unemployment rate “would have been about 3 percentage points higher than reported,” so 16.3 per cent if data were reported correctly, according to the agency’s statement. That refers to workers who were recorded as employed but absent from work due to other reasons, rather than unemployed on temporary layoff.
The broader U-6, or underemployment rate -- which includes those who haven’t searched for a job recently or want full-time employment -- fell only slightly to 21.2 per cent in May from 22.8 per cent. In February, it was 7 per cent, with the main unemployment rate at a half-century low of 3.5 per cent.
The employment-population ratio rose to 52.8 per cent from 51.3 per cent. The participation rate -- or the sum of employed and unemployed Americans as a share of the working-age population -- advanced to 60.8 per cent from 60.2 per cent, with both indicating people are coming back to work.
Hiring in May was broad-based, with hard-hit restaurants rebounding along with retail and health care. But state and local government workers were hammered for a second month, with 571,000 job cuts.
“The bounceback started earlier than most expected, but don’t get too excited about this one month of data,” said Nick Bunker, an economic-research director at jobs website Indeed. “Sectors hit hardest by the coronavirus are the ones seeing the largest bounceback in employment.”
Manufacturing payrolls rose by 225,000, following a 1.32 million decline in April.
The share of the unemployed on temporary layoff fell to 73 per cent from a record-high 78.3 per cent. Goldman Sachs Group Inc. economists said before the report that if job losses remain concentrated in furloughs, “it would increase the scope for a more rapid labor market recovery.”
Average hourly earnings for employed private workers rose 6.7 per cent in May from a year ago, following 8 per cent in April, as the return of low-wage workers skewed pay figures back downward a bit.