The most recent US jobs report brought a gain of 2.5 million jobs in May and a decrease in the unemployment rate from 14.7% to 13.3%. It’s an important positive signal, particularly given that many analysts were anticipating losses of another eight million or more. However, the situation remains challenging and fluid, and the recovery will likely be bumpy.
There are two countervailing forces in the job market. Many companies are continuing to struggle and lay off workers. While initial weekly jobless claims have fallen substantially from peak levels, they are still three times as high as the previous records set during the 2008 recession. Simultaneously, as the economy reopens, some of the most labor-intensive segments (such as retail, bars and restaurants, and personal services) are hiring in large numbers. On balance, there was improvement in overall employment in May.
This pattern is certainly encouraging and consistent with our earlier assessment that, because there were no major structural problems in the economy, it could recover more rapidly than in 2008 (when it took 58 months to restore job losses). It is important, however, to keep things in perspective. The US lost more than 20 million jobs in April and gained about 2.5 million in May, so there remains an enormous gap to bridge. Much has been made of the fact that May bought the largest monthly gain ever recorded. While this statement is accurate, the increase restores only a fraction of the unprecedented prior loss. We may see some additional large net gains over the ensuing months given the dynamics of reopening, but this pace will not persist indefinitely.
In addition, subsequent data releases may well present a different picture. Job gains are based on a survey of establishments and could be notably revised downward in the next benchmarking if the number of operating locations has dropped. The unemployment rate is based on a survey of households, and there may have been some individuals who were classified as employed who were not working due to COVID-19 closures; if these people had been instead counted as unemployed on temporary layoff, the overall unemployment rate would have been several percentage points higher (although the direction of movement should be similar). The Bureau of Labor Statistics has acknowledged this issue.
It should take about two years to return to prior peak levels even with no major additional disruptions. Health and safety remain of paramount concern, and progress will depend on the ability to continue to resume activity without creating an additional spike in infections that will necessitate a new wave of restrictions. Even with these caveats, the fact that the job market is showing signs of recovery is clearly great news. Be safe!!