June 5, 2020
Executive Summary: US employers added 2.5 million jobs in May, clawing back some of the historic April job losses of 20.7 million, and pulling the unemployment rate down to 13.3%. This report highlights the effectiveness of the government support programs, particularly the Payroll Protection Program within the CARES Act, which we anticipated would encourage retaining and re-engaging workers rather quickly as lockdowns were lifted and activities resumed. Moreover, we believe a self-reinforcing upswing has begun, whereby the restarting of some activities will cause many of the furloughed workers to be recalled in the coming months.

Longer-Term Trend

US nonfarm payrolls rose by 2.5 million in May, more than double the largest monthly increase going back to 1939, which was 1.1 million in September 1983.

Once again, the number of unemployed persons reported as a temporary layoff was 15.3 million in May, while permanent job losses were 2.3 million. That equals 87% that were temporarily furloughed.

March and April were significantly worse than previously reported. Downward revisions to the prior two months sliced off 642,000 jobs from the previously reported totals. The March tally was revised down to -1.4 million from -881,000, and the April figure was revised down to -20.7 million from -20.5 million.

Labor Force and Unemployment

The unemployment rate declined by 1.4 percentage points to 13.3% in May from 14.7% in April. The all-in unemployment rate (U-6) also slipped, down 1.6 percentage points to 21.2% in May. The labor force added 1.75 million workers, pushing the total workforce up to 158.2 million. The labor force participation rate rebounded to 60.8% in May from 60.2% in April.

Industry Trends

Service-providing industries added 2.4 million workers, while goods producers added 669,000 workers. Only three segments had job losses in May. The increases were broad based, although the leisure & hospitality segment was nearly half of the May gains.

The beleaguered leisure & hospitality segment recovered about 16% of the heavy March and April job losses, but the results were mixed based on the subindustry. For instance, restaurants and bars actually rehired nearly 1.4 million, but hotels lost 148,200 jobs, along with smaller continued losses for performing arts, spectator sports, museums, etc. Meanwhile, amusement parks, gambling and other recreation industries added 26,400 workers.

Other services, which is not one of the 10 major segments, added a notable 272,000 workers. The subindustry detail is reported on a one-month lag, so the source of the hiring is unclear. We suspect that the bulk of the gains were within personal and laundry services, which includes hair/barber/nail/skin care establishments. That segment lost 785,100 jobs in April alone.

Conversely, government had sharp declines in May, as all three levels (federal/state/local) sustained job losses. Roughly 84% of the positions, or 487,000, were on the local level. Similar to April, 64% of the local-level jobs cut were educational positions.

Our Take

Our near-term outlook has dramatically improved based on the detail within this report. Again, much of the losses remain categorized as temporary furloughs and are largely confined within services. As the May rebound in leisure & hospitality and retailers show, most of these workers should return to work rather quickly as activities resume.

Yet, the unstoppable typical recessionary forces—highlighted by permanent job losses in the millions, bankruptcies and corporate restructurings—have damaged the US economy. These will be painful, have broader ramifications than just those directly involved and will not easily be repaired. Like most recessionary recoveries, the coming recovery will be measured in quarters and years, especially on the employment front. The devastation is brutal to witness.

Still, among the primary reasons for our optimism is the massive size of the assistance programs by the federal government, with a large income replacement component for individuals and businesses, and herculean efforts by the Federal Reserve to assist proper market function. Combined, these programs appear to be blunting some of the downside and are hastening the recovery.

Lastly, it is important to note that this report was a snapshot of the employment situation as of the second week in May (May 11 to 15), when most of the US was still under state-level, stay-at-home orders. Now roughly three weeks later, all 50 states are in varying phases of reopening.

Bottom Line

This a very different sort of recession, compressed into a tighter timeline than normal. While we are very encouraged by the strong May job gains, our enthusiasm is tempered considerably by the 2.3 million permanent job losses. And, sadly, there will be more permanent job cuts.

Nonetheless, the bulk of the job losses appear to be in the rearview mirror. We anticipate that the myriad of government support programs is helping many individuals and businesses get through this episode. Moreover, we believe a self-reinforcing upswing has begun, whereby the restarting of some activities will cause many of these furloughed workers to be recalled in the coming months. In turn, those workers will have income to spend. There will most certainly be some bumps in the path forward, but the repairing of the economy is well underway.

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