Could the worst already be over? Today’s monthly payrolls report suggests maybe it is, though one data point isn’t necessarily the last word on the matter.
Investors received a surprising curve-ball from the government Friday as the Labor Department reported that employment rose 2.5 million in May and the unemployment rate fell slightly to 13.3%. This went against almost everything analysts had been saying about the chance for eight million job losses and unemployment heading up toward 20%.
Looking at the numbers today, it reminds us once again how the stock market is often a forward indicator. There was a sense things were getting better around the economy and stocks rallied sharply in April and May. Here in June, we just received a very positive piece of news that might seem to justify at least some of the huge run-up in the market since the March lows. The market isn’t always right, but it sometimes turns out to be a pretty good forecaster.
The Payroll Number Slice-and-Dice
What’s really shocking is that many of the job gains came in leisure and hospitality, a sector of the economy that got slammed in March and April as the economy shut down. Employment in this category rose 2.5 million in May after falling 7.5 million in April.
The Labor Department said:
“Improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it."
Food services and drinking places led the May hiring spree in leisure and hospitality, but hotels kept losing jobs. Maybe this sends a signal that restaurants began bringing workers back a bit earlier than people had expected, as re-openings started by mid-month.
It’s also great to see that construction employment rose 464,000 in May, a sign that the housing market might be strong and that maybe some businesses and local governments are adding infrastructure. Even retail employment rose 368,000 in May despite many stores still being shut down that month.
When you look at where jobs declined in May, the biggest factor was government. It shed more than 500,000 positions, and that could continue to be a drag.
While the jobs appear to be coming back in some industries, wages are falling. Average hourly pay dropped 29 cents in May, which could reflect the kind of jobs being added in leisure and hospitality where pay tends to be low. Still, manufacturing added 225,000 jobs and those tend to be higher-paying.
The government revised March and April job losses down by a combined 642,000, which sounds like a lot until you consider it in the context of more than 20 million jobs lost in those two months.
A Snapshot In Time
As we mentioned above, one month’s data point is just that: A snapshot in time. Next month’s payrolls report might have major revisions, as some have shown in the past. The government is trying to count up to numbers it hasn’t faced in decades when it comes to how many people are out of work. So even though the market is initially rallying on this data, it’s important not to get carried away and think the crisis is completely behind us. It isn’t. More pain could be ahead, and many Americans are suffering.
While there’s some hope that May could end up being the turning point in the unemployment situation, there’s still a chance things could slide from here. For instance, a lot of state and local governments are running low on funds, meaning they might have to lay off workers in the coming months.
Things could get tougher in August for people who are out of work, because expanded unemployment benefits are set to expire July 31. That’s potentially a problem on two levels. First for the people who won’t be getting benefits and second for the businesses that won’t be getting paid by those unemployed workers. As the Washington Post points out, it could mean a wave of defaults on credit card balances, car payments, and mortgages. We’ll have to see if Congress comes up with something before then.
All that is possible future pain, and the market is focusing instead on today’s positive news. Some of the stocks making gains in pre-market trading include airlines and casinos. This is the kind of report that probably would favor the “going back outside” type of companies instead of the “stay at home” ones.
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