Jobs Day Surprise

By Matthew Klein |  Friday, June 5

You’re Hired! Today’s jobs report was a big surprise. Forecasters had been expecting U.S. nonfarm payrolls to drop by about 7 million in May, after plunging by 21 million jobs in April, based on data from initial and continuing unemployment insurance claims. Instead, employment rose by 2.5 million jobs, or 1.9%. That’s the biggest one-month increase in civilian employment since the end of World War II. The unemployment rate fell  to 13.3% from 14.7%.

Markets responded vigorously, with the S&P 500 gaining 2.6%. A staggering 456 out of 500 components were up on the day, as were all 11 sectors. The biggest gainers were shale companies, cruise lines, and shopping mall operators, while the biggest loser was cleaning-supply company Clorox. Oil was also up 6%, while gold was down 2.5%. (Interest rates were essentially flat.)

Not everything is rosy, however. For one thing, constrained state and local governments shed almost 600,000 jobs in response to the plunge in tax receipts in May, on top of the 1 million jobs cut in April. Then there’s the rise in what the Bureau of Labor Statistics calls “permanent job losers.”

These people are always a minority of the total unemployed, but the changes in this category usually drive the overall jobless rate and explain most of the movements in the business cycle. While the overall unemployment number fell in May, thanks to the drop in workers counted as being on “temporary layoff,”  the number of permanent job losers rose by 15%.

The split between temporary and permanent job losses is also reflected in the sectors that saw the most and least growth in May. Most of the major sectors directly affected by the coronavirus—construction, retail, leisure and hospitality, personal services, and dentists—together accounted for more than 2.6 million new jobs in May. (Passenger transportation and movie studios were also savaged by the virus, but had no recovery in May.) The rest of the economy either continued losing jobs or was flat. Whatever initial gains came from hitting bottom in April have not yet flowed through to the vast majority of the U.S. job market.

The biggest reason to worry about this jobs report, however, is what it could mean for policy. Much of the income support provided by the government is already set to expire or run out in the next few months. While some in Congress want to fix that, others are seizing on the latest jobs data as proof that nothing more needs to be done.

Stephen Moore, an economic adviser to the Trump Administration, said that “there’s no reason to have a major spending bill” and that “the sense of urgent crisis is very greatly dissipated by the report.”

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