Key Takeaways
- The May U.S. jobs report revealed a rebound in activity with the start of reopenings in early May. Nonfarm payrolls jumped by 2.5 million, re-gaining one-tenth of the jobs lost in March and April. The 19.6 million jobs remain lost, twice the jobs lost during the Great Financial Crisis. The unemployment rate declined to 13.3% from 14.7%, and average weekly hours worked rose.
- Extreme statistical conditions mean there is potential for meaningful revisions. The timing of the net gain in nonfarm payroll employment is at odds with the closely followed unemployment insurance claims report; the unemployment rate understated the true unemployment rate by 3 percentage points due to misclassification issues; the household survey response was 15 percentage points lower than in months prior to the pandemic; and the firm survey was also lower, because bankrupt firms were not captured.
- We continue to anticipate a much larger increase in employment in June as businesses call back employees when the economy continues to reopen or as they received Paycheck Protection Program loans. Today's employment report doesn't materially change our unemployment rate forecast (from April 16) of 14% in the second quarter, recovering back down to 8% in the fourth quarter.
The May Bureau of Labor Statistics (BLS) jobs report was a pleasant surprise. The U.S. economy regained 2.5 million jobs in May as the shelter-in-place restrictions were gradually lifted. This rebound is a little more than a one-tenth of the 22 million job collapse seen in March and April.
The labor market recovery started sooner (in May) than we had anticipated. We expected layoffs to outpace (re-)hiring until the first half of May based on continuing claims, which had risen by 2.8 million between the survey weeks in April and May (the weeks with 12th of the month). Initial unemployment claimants also jumped over 12 million between the survey weeks with reportedly potentially more on the backlogs, also suggesting a disappointing figure. May payroll data defied the co-movements between continuing claims and nonfarm payroll that were apparent in the early months of past recoveries.
Continuing claims indeed started to shrink in the second half of May, and the disconnect between the employment report and jobless claims may be resolved through revisions in the coming months.
The timing of the turning point aside, the large monthly increase in jobs after the end of lock-down--the 2.5 million increase is the largest monthly increase on record--doesn't particularly surprise us. In fact, in our forecast, we had expected a sharp initial burst of recovery in employment starting in tandem with the wider reopening of the economy through the summer, starting with sizable jobs gains in the June BLS report.
Aside from the increasing product demand as social distancing restrictions loosen, net job gains should pick up pace in coming weeks as portions of the Paycheck Protection Program's (PPP) loans used by businesses for payrolls are forgiven--if they rehire workers by June 30, 2020. As we have said before in this series, the PPP is supposed to keep workers in the workforce and off the unemployment rolls. The PPP (rounds 1 and 2) makes $659 billion worth of loans available to businesses, at least three-fifths of which must be used to support payrolls in order to qualify for loan forgiveness (it was three-fourths, but the PPP Flexibility Act passed June 5 made it easier); by May 30, $510.2 billion had been approved, according to the Small Business Administration PPP report.
The unemployment rate, which comes from the household survey, declined by 1.4 percentage points to 13.3% in May, well below the high teens that we had feared. According to the BLS, the unemployment rate could have been higher--near 16.3% in May following about 19% in April--if not for classification issues (1). The broader U6 underemployment rate, which captures marginally attached and underemployed individuals, fell 1.6 percentage point to 21.2%, while the labor force participation rate rose 0.6 percentage point to 60.8%--still near the early 1970s level.
To avoid misclassification (workers that were wrongly classified as employed or out of the labor force, or bankrupt firms that weren't captured by the payroll survey), we like to look at the employment to population ratio: It plummeted to 51.3% in April from 61.1% in February, then ticked up to 52.8% in May. Similarly, the prime-age-only segment of the population (ages 25-54) has also bounced up from its April trough (see chart). Of all the signals, it's the best noise-free indicator that the labor market has turned.
The changes in U.S. employment and unemployment data are more striking than in most other nations, because the BLS aims to count workers who are furloughed (adding to unemployment) and adding them to employment (reducing unemployment) when they are rehired.
Employment gains were more or less broad based in private industries, with employment rising sharply in leisure and hospitality (by 1.2 million)--making up almost half of the total gains. Leisure and hospitality still has more than 7 million jobs to recover to get to prepandemic levels. Construction, education and health services, and retail trade also saw sharp gains. By contrast, employment in government, especially at the local level, continued to decline sharply. We won't be surprised to see a series of unprecedentedly strong monthly jobs numbers as the normalization process continues.
As for wages, compositional effects went the other way in May as the disproportionate gain in employment in low-paying industries artificially deflated wage growth. Average hourly earnings fell 1.0% month over month, partially reversing the 4.7% surge in April. The aggregate weekly payrolls index, a proxy for total wages and salaries, which combines employment, average weekly hours worked, and average hourly earnings, increased by 3.3% month over month and will support consumption.
All in all, the May employment report still showed 15 million additional folks unemployed and the unemployment rate up by 9.8 percentage points from February. We continue to expect the recovery to speed up as we enter summer months and the unemployment rate to fall to 8% in the fourth quarter of 2020. And there are some good indications to support our relatively optimistic forecast (compared with consensus). First, the payroll jobs diffusion index, which tracks the percent of industries adding jobs, went to 70% in May from 4% in April, the biggest monthly jump on record. If that holds, it means a much larger set of both industries and firms is reopening sooner than expected. Second, the share of unemployed workers on temporary layoff remained elevated in May at 73%, implying a large share of the unemployed are still at least somewhat attached to work. That share was a hugely elevated 78% in April and has held its ground well so far, although some temporary layoffs became permanent. This is a key space to watch in the coming months.
Table 1
| Nontraditional Data Comparison | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (February, before COVID-19 and May, after COVID-19) | ||||||||||
| Hotel and entertainment industry | ||||||||||
| Period | Year on year (%) | Period | Year on year (%) | |||||||
| Hotel occupancy | Week ending May 30 | (43.2) | Week ending Feb. 28 | (1.7) | ||||||
| Hotel average daily rate | Week ending May 30 | (33.3) | Week ending Feb. 28 | 1.6 | ||||||
| Hotel revenue per room | Week ending May 30 | (62.1) | Week ending Feb. 28 | (0.2) | ||||||
| Box Office Mojo | Week ending May 28 | (99.9) | Week ending Feb. 21 | 17.5 | ||||||
| Open Table | Week ending May 31 | (83.8) | Week ending Feb. 28 | 3.0 | ||||||
| Retail online transactions-revenue | Week ending May 31 | 59.0 | Week ending April 3 | 23.0 | ||||||
| Retail online transactions-orders | Week ending May 31 | 74.7 | Week ending April 3 | 39.0 | ||||||
| SBA weekly lending reports | Week ending May 29 | (6.6) | Week ending Feb. 28 | (11.7) | ||||||
| Commodity data | ||||||||||
| Coal production | Week ending May 30 | (33.8) | Week ending Feb. 22 | (1.0) | ||||||
| Crude production | Week ending May 29 | (9.7) | Week ending 21st February | 7.4 | ||||||
| Rotary Rig Count, Baker Hughes, oil | Week ending May 29 | (72.3) | Week ending Feb. 15 | (21.0) | ||||||
| Energy consumption | Week ending May 31 | (8.5) | Week ending Feb. 15 | (21.0) | ||||||
| Gasoline prices | Week ending June 1 | (29.7) | Week ending Feb. 17 | 4.8 | ||||||
| Raw steel production | Week ending May 30 | (35.9) | Week ending Feb. 29 | 0.3 | ||||||
| Business and consumer sentiment | ||||||||||
| Period | Index | Period | Index | |||||||
| Philadelphia Fed General Business Conditions Index | Survey was conducted in the week of May 11‒18 | (43.1) | The survey results data received through Feb. 20 | 36.7 | ||||||
| Empire State General Business Conditions Index | survey was conducted in the week of May 4‒10 | (48.5) | The survey was conducted until Feb. 15 | 12.9 | ||||||
| Rasmussen Consumer Index | Survey was conducted in the first week of May | 93.7 | The survey was conducted in the week of Feb. 9‒16 | 143.9 | ||||||
| Labor market data | ||||||||||
| Period | Number of claims | Period | Number of claims | |||||||
| Initial claim (mil.) | Week ending May 30 | 1.877 | Week ending Feb. 22 | 0.220 | ||||||
| Source: U.S. Employment and Training Administration, EIA-Energy Information Administration, American Iron and Steel Institute, Open Table App, Rasmussen reports, University of Michigan, STR, Baker-Hughes rig count, Box Office Mojo, and ccinsight. | ||||||||||
Table 2
| Data Snapshot | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Review of economic indicators released in the past two weeks (May 25, 2020 - June 5, 2020) | ||||||||||||||
| Latest period | May-20 | Apr-20 | Mar-20 | Level year ago | % year-over-year | |||||||||
| Labor market | ||||||||||||||
| Jobless claims (four-week moving average) | 30-May-20 | 2,284,000 | 4,180,500 | 2,666,750 | 218,250 | |||||||||
| Unemployment rate (%) | May | 13.3 | 14.7 | 4.4 | 3.6 | |||||||||
| Nonfarm payrolls (change in '000) | May | 2,509 | (20,687) | (1,373) | 85 | |||||||||
| Total private nonfarm payrolls (change in '000) | May | 3,094 | (19,724) | (1,356) | 87 | |||||||||
| Average hourly earnings, total private (month over month ,% change) | May | (0.97) | 4.71 | 0.60 | 6.75 | |||||||||
| Average weekly hours worked | May | 35 | 34 | 34 | 34.4 | |||||||||
| ADP Employment (change in '000s) | May | (2,760) | (19,557) | (302) | 89 | |||||||||
| Participation rate (%) | May | 60.8 | 60.2 | 62.7 | 62.9 | |||||||||
| Consumer spending and confidence | ||||||||||||||
| Consumer Confidence Index (Conference Board) | May | 86.6 | 85.7 | 118.8 | 131.3 | |||||||||
| Personal income (month over month, % change) | April | 10.5 | (2.2) | 11.7 | ||||||||||
| Personal disposable income (month over month, % change) | April | 12.9 | (2.1) | 14.4 | ||||||||||
| Consumer spending (month over month, % change) | April | (13.6) | (6.9) | (16.9) | ||||||||||
| Savings rate (%) | April | 33.0 | 12.7 | 8.0 | ||||||||||
| Consumer Sentiment Index (University of Michigan) | May | 72.3 | 71.8 | 89.1 | 100 | |||||||||
| Business activity and sentiment | ||||||||||||||
| Manufacturers new orders: durable goods (month over month, % change) | April | (17.7) | (16.7) | (29.8) | ||||||||||
| ISM Manufacturing Index (Level) | May | 43.1 | 41.5 | 49.1 | 52.3 | |||||||||
| ISM-Non Manufacturing Index (Level) | May | 45.4 | 41.8 | 52.5 | 56.3 | |||||||||
| Chicago Purchasing Manager's Index | May | 32.3 | 35.4 | 47.8 | 52.8 | |||||||||
| Housing and construction | ||||||||||||||
| New home sales ('000s) | April | 623 | 619 | 664 | ||||||||||
| Pending home sales (%, month over month) | April | (21.8) | (20.8) | (33.8) | ||||||||||
| Construction spending (%, month over month) | April | (2.9) | 0.0 | 3.0 | ||||||||||
| External sector | ||||||||||||||
| Trade balance of goods and services (bil. $) | April | (49.4) | (42.3) | (49.2) | ||||||||||
| Exports goods and services (bil. $) | April | 151.3 | 190.2 | 209.3 | ||||||||||
| Imports goods and services (bil. $) | April | 200.7 | 232.5 | 258.5 | ||||||||||
| Prices | ||||||||||||||
| PCE Price Index (month over month, % change) | April | (0.5) | (0.2) | 0.5 | ||||||||||
| Core PCE Price Index (month over month, % change) | April | (0.4) | (0.0) | 1.0 | ||||||||||
| Q1 2020 | Q4 2019 | Q3 2019 | ||||||||||||
| GDP (%, SAAR) | (5) | 2.1 | 2.1 | 0.2 | ||||||||||
| Note: Jobless claims is weekly data. Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, U.S. Census Bureau, Institute for Supply Management, ADP Research Institute. | ||||||||||||||
Table 3
| Economic Release Calendar | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Date | Release | For | Consensus | Previous | ||||||
| 9-Jun | Wholesale sales (%) | April | (10.3) | (5.2) | ||||||
| 10-Jun | CPI (%) | May | 0.0 | (0.8) | ||||||
| 10-Jun | CPI (excluding food and energy) (%) | May | 0.0 | (0.4) | ||||||
| 10-Jun | Treasury budget (bil. $) | May | (670) | (738) | ||||||
| 11-Jun | PPI (%) | May | 0.0 | (1.3) | ||||||
| 11-Jun | PPI (excluding food and energy) (%) | May | (0.1) | (0.3) | ||||||
| 11-Jun | Initial claims ('000) | Week of 6/6/20 | 1,500 | 1,877 | ||||||
| 12-Jun | Export Price Index (%) | May | 0.4 | (3.3) | ||||||
| 12-Jun | Import Price Index (%) | May | 0.5 | (2.6) | ||||||
| 12-Jun | University of Michigan Consumer Sentiment (preliminary) | June | 75.0 | 72.3 | ||||||
| 15-Jun | Empire State Index | June | (32.5) | (48.5) | ||||||
| 16-Jun | Retail sales (%) | May | 6.0% | -16.4% | ||||||
| 16-Jun | Retail sales (excluding auto) (%) | May | 5.0 | (17.2) | ||||||
| 16-Jun | Industrial production (%) | May | (0.1) | (11.2) | ||||||
| 16-Jun | Capacity utilization (%) | May | 64.8 | 64.9 | ||||||
| 16-Jun | Business inventories (%) | April | (0.5) | (0.2) | ||||||
| 17-Jun | Housing starts (mil.) | May | 1.060 | 0.891 | ||||||
| 18-Jun | Philadelphia Fed Index | June | (27.5) | (43.1) | ||||||
| 18-Jun | Leading indicators (%) | May | 1.0 | (4.4) | ||||||
| 19-Jun | Current account (bil. $) | Q1 | (110.2) | (109.8) | ||||||
| Note: Due to the fluid nature of May data, we are only including consensus forecasts in this edition of Biweekly. | ||||||||||
Endnotes
(1) As per the BLS, "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."
Related Research
- U.S. Business Cycle Barometer: Digging Out Of A Deep Hole, May 29, 2020
- The Paycheck Protection Program Impact On Jobs: (More) Help Wanted, May 28, 2020
- U.S. Real-Time Economic Data Hints At Signs Of Improvement From Recent Lows, May 21, 2020
- An Already Historic U.S. Downturn Now Looks Even Worse, April 16, 2020
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
| U.S. Chief Economist: | Beth Ann Bovino, New York (1) 212-438-1652; bethann.bovino@spglobal.com |
| U.S. Senior Economist: | Satyam Panday, New York + 1 (212) 438 6009; satyam.panday@spglobal.com |
| Research Contributors: | Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
| Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai |
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