Rewrite The Script: Unemployment Rate Drops, As US Labor Market Stages Dramatic Rebound

Rewrite the script.

The US added 2.5 million jobs in May, marking an astonishing turnaround after April’s historic tragedy.

Markets had largely written May’s report off as a kind of sunk cost, and economists were expecting another grim read on the headline. And yet, somehow, the labor market bounced back in spectacular fashion.

The market was looking for another 7.5 million lost jobs over the survey period. That means this print is a remarkable beat, to put it mildly.

April’s 20.5 million headline was revised to 20.7 million lost jobs, and March’s report was revised sharply lower to -1.4 million.

And yet, those revisions hardly matter now. The unemployment rate was expected to hit nearly 20%, the highest since the Great Depression. Instead, it dropped from April to 13.3%.

Manufacturing payrolls rose 225,000 for the month, defying expectations for a 400,000 decline. The most optimistic estimate was for a loss of another 150,000 factory jobs.

Private payrolls rose 3.1 million against an estimated 6.75 million loss.

“These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain it”, the government said.

Employment in leisure and hospitality, construction, education and health services, and retail rose markedly for the month. Government payrolls continued to decline sharply, the BLS said.

This comes on the heels of an optically “good” ADP report for May, which perhaps presaged this rather anomalous beat.

It would be fair to say that this report does not match up with weekly jobless claims data. Thursday’s numbers, for example, were worse-than-expected, and millions of Americans have filed every week since the onset of the crisis.

Although continuing claims dropped two weeks ago, it’s somewhat difficult to reconcile all of this.

The bottom line (and I’ll have more on this as the day goes on) is that May’s jobs report was “supposed” to be the second worst top-tier economic data print in modern history, eclipsed only by the previous month’s astounding decline.

Instead, it offers the best argument yet for a “V-shaped” recovery. Or at least that’s the way it appears.


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21 thoughts on “Rewrite The Script: Unemployment Rate Drops, As US Labor Market Stages Dramatic Rebound

  1. Call me paranoid, but is it possible that these are just made up? I mean, not literally made up out of thin air, but rather that they applied a different set of criteria for this report that results in large numbers of job losses to be stripped out (or some other similar statistical sorcery). I mean, the BLS wouldn’t do that, right?

    1. I’m not going to go there in these pages, namely because my pledge to readers is to never traffic in conspiracy theories. But I did weigh in on Twitter.

      For our purposes here, I’ll simply stick to what, for now, are the “facts”, but readers are free to draw their own conclusions given that this is very, very shocking.

      1. Of course, and I really appreciate that you don’t engage in that. That’s part of why I subscribe. As someone just posting a comment though, I don’t feel the need to be quite as restrained. Mostly though, it just seems so shockingly out of line with what was expected and what other data indicated that I’m struggling to understand it.

        A conspiracy to rig the statistics would be one explanation, but that just seems too ridiculous. Especially since it wouldn’t take very long to be exposed and the blowback would be epic, so why would you even do it?

        1. In part, it could be a statistical quirk like the increase in the average wage because it was mostly low-paying jobs that were lost. It could be because Wallmart and Amazon and other big retailers made new hires (that may not be permanent). It could be because we are starting to open up.

          Yet, if they can gas and charge unarmed legal protesters just so Assface can take a picture with a book he has never read, in front of a church he has never visited, then it could also be that the numbers are twisted.

        2. “Blow back would be epic” for one or two news cycles and then spun and forgotten. It’s gonna take a while to get this new world figured out.

  2. On MSNBC just now, Operation Hope’s John Hope Bryant suggested these are all PPE-funded jobs, “X-ray jobs.” If so, good on Mnuchin et al for moving quickly to fill the hole. Question for investors now is: Will it be sustained. i.e., will we see another $2-$3 trillion relief package in July?

  3. From what I have read, the denominator in the labor force report went from 164,606,000 in January to 158,227,000 in May. Labor force decreased by 6.4M?

  4. There are certainly some anomolies here. With the fullness of time the disconnect between weekly claims and the unemployment rate will be determined. Even so, it is likely the number represents a better outcome than expected. It is difficult to measure these types of numbers in such a shock. The anomolies are probably a combination of several factors….

  5. you know, you look at that first chart, hard to tell for sure, but it looks kinda … oh, I don’t know… v-shaped?

    an actual recovery, with extra trillions sloshing around and an election still to be bought … the mind boggles.

      1. When 13.9% is a cause for celebration perspective has been lost. Investors seem to be completely out on a sea of QE without any stars or shores for reference.

  6. Whether or not the numbers are accurate, whether or not they might be massaged, whether or not you personally feel that 13% unemployment is a good piece of news; the timing today certainly is a fortuitous distraction for any elected officials that might not otherwise have been having a good week.

  7. Was there an equally positive improvement in the participation rate or total number of discouraged workers? Looking at those numbers may provide more insight.

  8. With the PPP set to expire in July and the opening up in most states occurring simultaneously a lot of people went back to their old jobs if only to double dip or to guarantee when the music stops they will have a chair. I could not understand the surprise in this number. It was a given in the way I saw this…
    I have learned from H…. and the comments on this sight that when the extremes of liquidity are dumped in this market the given result of UP by Default is also a virtually inevitable…..I’d love to say something profound here but as I always said over the last decade “you can run but you can’t hide ” (this time) The solvency issue is next…

    1. Yup. For the Fed it’s all about keeping zombies alive. Corporations issuing bonds at a record rate for no other reason than to have a pile of cash to burn through when the second wave hits and/or another exogenous shock strikes. It’s not like corporate debt was at a record in February 2020 or anything or the Federal budget was seriously primary negative or that Fed had to take over Repo after the October seizures. Those rate cuts really were just “fine tuning” a well oiled machine hitting on all cylinders before Covid 19 was permitted to spread indiscriminately in January and February. I don’t think anyone thought valuations were stretched in the least in February 2020.

      This report will be used as cudgel to deny states necessary aid, extend unemployment benefits or provide supplemental health care benefits for those who are among the 30 odd million unemployed still remaining.

  9. So lots of people were laid off… then PPP required rehiring employees. PPP got a second infusion of cash. It seems to me that PPP had a moderate effect… but it doesn’t solve anything long term. Covid is on the uptick. There is no more unemployment boost after July. I have little confidence in a V. More like a downward striking lightning bolt symbol.

    1. I was actually unsure for a long time, but moving to new lows is probably not in the cards anymore. Most of the rally has been fuelled by systematic/CTA funds. Most fund managers have been sitting on the sidelines with huge piles of cash while the Fed moves to boost markets. I’ve been wondering at what point those fund managers would throw in the towel and start bidding. This jobs report could be that catalyst.

  10. Highly unlikely numbers are manipulated through political influence, but a lot of highly unlikely acts of political manipulation have occurred with this administration. Obviously May is a special case, but one could compare the magnitude of revisions under this administration vs historically to get some sort of sense.

    On another note, although this is indeed good news, it could hurt the paradigm shift towards greater socialism and decreased inequality. People have selectively short memories. Keep the masses employed, even at ridiculously low wages, and you will substantially quell the desire for revolution. Still, perhaps the pandemic and widespread rioting have given the ultra-rich pause to think – hard to enjoy life with billions in assets while society slowly collapses. Either address inequality or start building walls. Maybe add some moats filled with alligators? Ahhhh the American Dream 🙂

  11. Got tired of missing out so dipped my toes in the water mid-May. The five stocks I bought average 40% to the upside. The two best are up over 60%. Just think, these two will be up over 720% in less than a year and the whole portfolio including the three dogs that are up only 25% will be up 500% or more!. Wow! Time to jump in with both feet! So why on earth did I sell all of them today? Kicking myself already.

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