A shocking gain in jobs for May. Doesn't ring true, but is it?

My thoughts around 730 am today – “With several millions of new unemployment claims in late April and early May, I imagine today’s US jobs report will reflect that with another large loss of jobs and unemployment going well above the 14.7% that was reported in April. Let’s see what the headlines say.”

The U.S. regained 2.5 million jobs in May and the unemployment rate fell to 13.3%, confounding Wall Street expectations for another big wave of layoffs and signaling the economy began to revive last month after the worst economic crisis since the Great Depression of the 1930s.

Stock prices surged after the surprisingly upbeat May employment numbers. Economists polled by MarketWatch had forecast a loss of 7.25 million jobs. The unemployment rate was expected to rise to 19% from a post-World War Two record of 14.7% in April.

I was also “confounded”, and I’m sure many of you were. So let’s go to the actual jobs report and see what’s going on.

One whole page of the report is dedicated to explaining some of the problems the BLS has had in obtaining data that accurate reflects the once-in-a-generation situation that our economy is in. And the agency explains that the unemployment rate is likely above 13.3% in the real world, but that individuals aren’t describing their job situation in a way that matches up with BLS definitions.

In the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week (May 10th through May 16th). Workers who indicate they were not working during the entire survey reference week and expect to be recalled to their jobs should be classified as unemployed on temporary layoff. In May, a large number of persons were classified as unemployed on temporary layoff.

However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

But that’s no different than what we’ve seen in the last 2 months, so that doesn’t quite explain a 2.5 million increase in employment. Let’s look at what respondents said about their own changes in employed/unemployed status.

The number of unemployed persons who were on temporary layoff decreased by 2.7 million in May to 15.3 million, following a sharp increase of 16.2 million in April. Among those not on temporary layoff, the number of permanent job losers continued to rise, increasing by 295,000 in May to 2.3 million. (See table A-11.)

In May, the number of unemployed persons who were jobless less than 5 weeks decreased by 10.4 million to 3.9 million. These individuals made up 18.5 percent of the unemployed. The number of unemployed persons who were jobless 5 to 14 weeks rose by 7.8 million to 14.8 million, accounting for about 70.8 percent of the unemployed. The number of long-term unemployed (those jobless for 27 weeks or more), at 1.2 million, increased by 225,000 over the month and represented 5.6 percent of the unemployed.

So we’re seeing some furloughs and related COVID-induced cutbacks end, but we’re also seeing an increasing number of jobs and businesses gone for good, resulting in the increases in long-term unemployed.

Along those lines, Washington Post economics writer Heather Long noticed the disparities among sectors in the jobs report.

This is telling. Look at the where the jobs were gained v. lost in May

GAINS
Restaurants: +1.4 million
Construction: +464,000
Healthcare: +312,000
Retail: +368,000
Manufacturing: +225,000
Business: +127,000

LOSSES
Government: -585,000
Hotels: -148,000
Air transport: -50,000

— Heather Long (@byHeatherLong) June 5, 2020

It seems logical that some restaurants and retail establishments that closed due to Safer at Home orders would reopen, as would health care offices that specialize in non-COVID treatment (dentist offices added nearly 245,000 people by themselves, after losing over 500,000 jobs in April).

On the flip side, nearly 2/3 of the losses in government are in education, reflecting college and K-12 institutions closing earlier than normal and/or needing less staff to operate. Local government agencies were most of the other 1/3 of losses, cutting back in a time when many parks and streets systems are starting to hire up for the Summer.

As for construction and manufacturing, those gains don’t come close to recovering the big losses in last month.

Change in jobs, March – May 2020

Construction
April 2020 -995,000
May 2020 +464,000
Net change -531,000

Manufacturing
April 2020 -1,324,000
May 2020 +225,000
Net change -1,099,000

Yeah, long road back to what we had before COVID hit in both of those industries.

Likewise, the US economy is still 19.55 million jobs below where we were in February, even with this surprising gain for May. But President Trump had to find something positive after this disastrous week, so he decided to take credit for the jobs re[port. In the same event where he said today “was a great day for George Floyd” (I wish I was kidding), Trump said that “left-wing” policies would be the only thing that could stop the economy from recovering.

But as the Post's Long notes, left-wing policies are a big reason for the job rebound. This includes a Paycheck Protection Plan that gave employers money to keep/rehire workers, and the stabilization checks that were sent to all Americans to keep them afloat and spending.

Two key takeaways from the surprise jobs report:

1. PPP worked. The gov't aid did help. Congress will have to think carefully about letting so much aid expire in July/August

2. Unemployment rate would be 16.3%, not 13.3%, @BLS_gov says if some were people weren't misclassified pic.twitter.com/U3hEvYkUGO

— Heather Long (@byHeatherLong) June 5, 2020

We know some of this aid will not be expiring in the Summer, as Long feared. Because Trump signed a bill today that extends PPP deadlines for employers to hire back workers and in paying back their loans under the program. It also lessens the amount of workers that those employers need to keep under the program (60% of former payroll vs 75%).

Those changes sailed through Congress in recent days, with one hiccup in the Senate.

The chamber approved the measure by voice vote hours after Sen. Ron Johnson blocked a Democratic effort to unanimously approve it. The Wisconsin Republican got assurances assurances on making changes to the bill later. He has said he wants the loan system known as the Paycheck Protection Program to expire earlier than initially planned.

What, can't you marry a billionaire's daughter like me?

If stimulative measures are ended in the coming months (which may happen if the (Mo)Ron Johnson types misread the signal, claim “all is well” and no need for Congress to keep helping), then it becomes possible that a US economy that is still extremely weakened relapses into further stagnation and/or job losses. That would be disastrous given the massive hole we are already in, and the next steps are worth keeping an eye on going forward.

Adding jobs in May beats losing more, to be sure. But with new unemployment claims still coming in at rates that would have been records before 2020, the surprise increase in jobs may end up sending the wrong signal to decision-makers. This may well be a weird blip that reflects short-term, cosmetic changes measures like PPP and the end of Safer at Home restrictions, but doesn't seem to be based on actual economic growth.

And if we want to truly stop the bleeding in the economy, we need to see everyday Americans being comfortable enough to spend more instead of struggle to stay afloat in both their pocketbook, and their health.