With the coronavirus and now the urban unrest battering the economy, a large dose of unexpected good economic news crossed the wire this morning from the Bureau of Labor Statistics: the economy added 2.5 million nonfarm payroll jobs in May versus the forecast consensus of another steep decline of 7.5 million jobs.
The unemployment rate fell from 14.7% to 13.3%. Before Friday, the consensus forecast was for an increase in unemployment to 19%—a level last seen since the Great Depression in the 1930s.
This is the largest one-month job gain ever by more than double (September 1983 held the prior record at 1.1 million jobs) and suggests the possibility of the “V”-shaped recovery some economists were predicting, given that the underlying fundamentals of the economy were very strong before the lock-downs imposed by most state and local government officials in response to the COVID-19 outbreak.
The largest employment gains were in sectors particularly hard hit by government-ordered restrictions aimed at slowing the spread of the virus: leisure and hospitality added 1.2 million jobs, construction, 464,000, education and health services up 424,000, retail trade gained 368,000, and even manufacturing saw a large increase of 225,000.
In contrast, government employment fell by 585,000, as tax revenue plunged due to the contraction in the economy. Most of those losses were in local government, where 310,000 people were out of work.
The quick rebound was largely due to the fact that most workers remained either formally or informally attached to their jobs, rather than being permanently laid off. The May report also showed 15.3 million workers were temporarily laid off with an estimated 4.9 million people who had lost their jobs for a time, but were counted as employed but “not at work for other reasons.” This increases the odds of a rapid recovery.
The Dow was up 945 points, 3.6%, in early trading, with markets in Europe also jumping on the news out of America.
There are significant concerns that the recent urban unrest and the resultant loss of businesses and injuries due to arson and looting will slow the economic recovery. However, those effects may be highly localized. Furthermore, the greatest damage from the riots largely coincided with areas where local and state politicians were the most aggressive in pursuing COVID-related shutdowns of business. The areas hardest hit by the urban violence were also those where mayors and governors were reluctant to quell the looting and arson, allowing the violence to spiral out of control.
Elected officials who closed churches, synagogues, and restaurants suddenly embraced large protests in which social distancing was thrown out the window. The irony wasn’t lost on some entrepreneurs. There were reports of restaurant owners flouting social distancing orders by fully opening. One owner cited the large protests on the streets in recent days that showed those orders were being inconsistently applied, giving the impression that politics, rather than public health concerns, were driving policy.