Where a shocking new jobs report could lead us

Inside a report that defied all expectations

Jun 08, 2020 | Editorial | Jobs | Government | Business
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We thought May would bring more bad news...

Economists at the Bureau of Labor Statistics (BLS) had predicted a dire May for jobs: more than 8 million lost, contributing to an unemployment rate of nearly 20%, its highest since the Great Depression. On the heels of April's historically grim data, even the Wall Street Journal seemed braced for bad news in the hours leading up to the report's release.

...but we were wrong!

Unemployment actually decreased last month to 13.3%, with an additional 2.5 million jobs being added to the labor market. It's perhaps the biggest one-month job increase ever, more than doubling September 1983's record of 1.1 million. The news made for a jubilant Friday for stockbrokers, as the Dow surged 800 points and the S&P 500 extended the greatest 50-day rally in the index's history.

Why did this happen?

Much of the gain came from classified "temporary layoffs," or furloughs, as workers temporarily sidelined without pay returned to their positions. As dozens of states entered early stages of reopening this May, they brought back their employees, proving right some of the 78% of surveyed workers from April's report who believed their job loss would be temporary.

The Payment Protection Program (PPP) may also deserve credit: businesses were likely motivated by the fact that many PPP loans wouldn't have to be paid back if they were able to rehire and pay employees quickly. More than half the job gain accounted for came from the PPP-reliant restaurant industry, which added 1.4 million workers.

Why were initial predictions so off?

That PPP impact arrived earlier than expected: economists had initially thought that they'd see the effects of PPP loans at work in June, so seeing the effects in May meant the program, at least in terms of rehiring data, was running ahead of schedule.

A "misclassification error" could be part of it: the BLS caught flack for acknowledging they'd classified some workers who are actually out of a job incorrectly, meaning the unemployment rate could really be as high as 16%.

It's all unprecedented: modern economists simply don't have a major pandemic in our past to effectively predict employment data from. Even the influenza outbreak of 1918 predates the first BLS labor force projections by nearly four decades.

So is the recession over?

Not quite. Even with May's job boom, the current unemployment rate is still 3% higher than it was at the absolute peak of the Great Recession. And we're also down more than 20 million jobs from February 2020, which would take another nine equally-sunny labor reports to fully compensate for.

However, it could point towards a sharper, more rapid, V-shaped recovery, rather than a long term U-shaped recovery some initially feared. Although it'll take more than one good report to make up for a dreary April (and March), the fact that May subbed out flowers for a bright spot of news could mean economic stability sooner rather than later.



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