[US] Huge surprises in latest US jobs report

The monthly US jobs report often contains surprising information but the report released this Friday caught the majority of observers off-guard, The News reports.

There was a widespread belief among many - from Wall Street economists to Trump administration officials and Federal Reserve policymakers - that the US had suffered further job losses last month, perhaps as many as 8 million.

The report instead revealed that employers were reportedly bringing back a percentage of idled workers - up to a net 2.5 million jobs - to their payrolls, raising the possibility that a sustainable recovery might be underway and prompting questions about how forecasts could be so wrong.

The new data is encouraging and has revived optimism for a faster and potentially stronger rebound from the coronavirus crisis than assumed, with the trough apparently occurring in April and not later in the spring. However, this does not mean that the economy is on safe ground.

“We’ve fallen a long way here, and we’ve started to make some progress back,” Aaron Sojourner - labour economist and associate professor at the University of Minnesota school of management - said, “The first part of the way back is relatively easy, the middle part gets harder, and the last stretch is not going to be for a while.”

The gains in employment last month were spread across a wide variety of industries, as some states started lifting restrictions on economic activity. Leisure and hospitality - including restaurants - wrestled back 1.2 million jobs. The industry has lost more than 8 million jobs since the crisis began. Retailers got back 377,000 jobs out of the more than 2.3 million positions lost earlier in 2020.

Though a move in a positive direction, these restored jobs represent a mere fraction of the cumulative 22 million jobs lost earlier in the year. The unemployment rate of 13.3 per cent remains significantly above the 10 per cent peak it hit after the 2009 financial crisis.

“With more states moving to loosen their lockdowns in the coming weeks, particularly in the populous north-east, employment looks set to continue rebounding in June and beyond, although we still think it will be a long time before the labour market is anywhere near back to its pre-virus state,” Capital Economics wrote in a note.

The May jobs report for May surprised economists and officials partially because it stands in contrast with weekly figures showing mounting applications for unemployment benefits throughout the month. Mr Sojourner said the jobless reflected claims only the negative component of the labour market - recorded by the government as it processes applications - but there is no comparable high-frequency data for hiring. “There isn’t good systematic visibility into the upside,” he said.

Some other quirks in the numbers suggest caution, the labour department said the unemployment rate would have been 3 percentage points higher without a “misclassification error” that resulted in workers being recorded as employed but absent instead of temporarily laid off.

The labour department said the Bureau of Labor Statistics and the Census Bureau “are investigating why this misclassification error continues to occur and are taking additional steps to address the issue”.

Also of concern is an exodus from the labour force as Americans lose hope of finding a job during the pandemic. Disruptions to data collection methods also meant a smaller percentage of businesses and households responded to government surveys than before the pandemic.

Sophia Koropeckyj - managing director at Moody’s Analytics - said, “Employment will improve through the third quarter. After that, we will have regained about half of lost jobs. The unemployment rate will end the year at about 10 per cent. A full recovery will not occur in earnest until a vaccine is widely available by the second half of 2021.”

The brighter outlook for the labour market could also feel the impact of other forthcoming risks, like the possibility of a new wave of infections and economic disruptions from the ongoing mass protests across the US against racial injustice and police brutality. There is also significant uncertainty over whether small businesses will keep workers on their payrolls after government loans and grants from its $3 trillion stimulus measures have been spent.

According to The Financial Times, Chuck Schumer - top Democrat in the Senate - expressed concern that the better than expected job numbers could discourage Republicans from agreeing to additional stimulus measures.

“With nearly 20 million people out of work and unemployment among African-Americans increasing, now is not the time to be complacent or take a victory lap,” he said. “In order to avoid the risk of another great depression, Senate Republicans ought to stop sitting on their hands and work with Democrats to immediately pass legislation to make sure that everyone in America has the income and job security they need to feed their families and put a roof over their heads.”

The monthly US jobs report often contains surprising information but the report released this Friday caught the majority of observers off-guard, The News reports.

There was a widespread belief among many - from Wall Street economists to Trump administration officials and Federal Reserve policymakers - that the US had suffered further job losses last month, perhaps as many as 8 million.

The report instead revealed that employers were reportedly bringing back a percentage of idled workers - up to a net 2.5 million jobs - to their payrolls, raising the possibility that a sustainable recovery might be underway and prompting questions about how forecasts could be so wrong.

The new data is encouraging and has revived optimism for a faster and potentially stronger rebound from the coronavirus crisis than assumed, with the trough apparently occurring in April and not later in the spring. However, this does not mean that the economy is on safe ground.

“We’ve fallen a long way here, and we’ve started to make some progress back,” Aaron Sojourner - labour economist and associate professor at the University of Minnesota school of management - said, “The first part of the way back is relatively easy, the middle part gets harder, and the last stretch is not going to be for a while.”

The gains in employment last month were spread across a wide variety of industries, as some states started lifting restrictions on economic activity. Leisure and hospitality - including restaurants - wrestled back 1.2 million jobs. The industry has lost more than 8 million jobs since the crisis began. Retailers got back 377,000 jobs out of the more than 2.3 million positions lost earlier in 2020.

Though a move in a positive direction, these restored jobs represent a mere fraction of the cumulative 22 million jobs lost earlier in the year. The unemployment rate of 13.3 per cent remains significantly above the 10 per cent peak it hit after the 2009 financial crisis.

“With more states moving to loosen their lockdowns in the coming weeks, particularly in the populous north-east, employment looks set to continue rebounding in June and beyond, although we still think it will be a long time before the labour market is anywhere near back to its pre-virus state,” Capital Economics wrote in a note.

The May jobs report for May surprised economists and officials partially because it stands in contrast with weekly figures showing mounting applications for unemployment benefits throughout the month. Mr Sojourner said the jobless reflected claims only the negative component of the labour market - recorded by the government as it processes applications - but there is no comparable high-frequency data for hiring. “There isn’t good systematic visibility into the upside,” he said.

Some other quirks in the numbers suggest caution, the labour department said the unemployment rate would have been 3 percentage points higher without a “misclassification error” that resulted in workers being recorded as employed but absent instead of temporarily laid off.

The labour department said the Bureau of Labor Statistics and the Census Bureau “are investigating why this misclassification error continues to occur and are taking additional steps to address the issue”.

Also of concern is an exodus from the labour force as Americans lose hope of finding a job during the pandemic. Disruptions to data collection methods also meant a smaller percentage of businesses and households responded to government surveys than before the pandemic.

Sophia Koropeckyj - managing director at Moody’s Analytics - said, “Employment will improve through the third quarter. After that, we will have regained about half of lost jobs. The unemployment rate will end the year at about 10 per cent. A full recovery will not occur in earnest until a vaccine is widely available by the second half of 2021.”

The brighter outlook for the labour market could also feel the impact of other forthcoming risks, like the possibility of a new wave of infections and economic disruptions from the ongoing mass protests across the US against racial injustice and police brutality. There is also significant uncertainty over whether small businesses will keep workers on their payrolls after government loans and grants from its $3 trillion stimulus measures have been spent.

According to The Financial Times, Chuck Schumer - top Democrat in the Senate - expressed concern that the better than expected job numbers could discourage Republicans from agreeing to additional stimulus measures.

“With nearly 20 million people out of work and unemployment among African-Americans increasing, now is not the time to be complacent or take a victory lap,” he said. “In order to avoid the risk of another great depression, Senate Republicans ought to stop sitting on their hands and work with Democrats to immediately pass legislation to make sure that everyone in America has the income and job security they need to feed their families and put a roof over their heads.”