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June 5, 2020 Blog 2 min read
The jobs report may be the most shocking that we’ve seen in some time, but not for the reason that most would expect.

Employment chart with 5/31/20 data The unemployment rate dropped over 1% to 13.3%, beating the expectations for a significant rise to around 20%. Nonfarm payrolls increased by 2.5 million during the month – the most ever in a single month; contrast that with expectations for payrolls to be down by 8 million jobs or more. Both the direction and magnitude of the reported results represent something that we haven’t seen in economic data in quite some time: shockingly good news.

The reported increases in payrolls were wide-reaching and crossed over most sectors of the economy. The biggest lift came in leisure in hospitality, where 1.2 million workers returned to payrolls. In context, that’s still a small fraction of the 8.2 million jobs lost in the sector over the past two months, which has left most of the unemployed workers still on the sidelines.

Initial jobless claims have continued to pile up in the past month, and continuing claims haven’t come down meaningfully. Those factors certainly played a large role in influencing expectations for a continued surge in the unemployment rate. That seeming disconnect will undoubtedly raise some questions about the validity of these numbers. It’s important to note the difficulty in accurately measuring the state of the labor economy when conditions on the ground are changing rapidly, when the policy response intended to support the labor market is so massive, and when its effectiveness can’t be accurately estimated in real time.

The unexpected relative strength of this report may shed some light on a few aspects of conditions and the response that are exceptionally hard to gauge. How successful was the payroll protection program? How quickly will jobs return as states reopen? One month doesn’t make a trend, but the sharp turn in May justifies a bit more optimism about the near-term outlook. It’s still far too soon to know what the path back will look like, but the May employment report opens the door for an outcome that is less dire than the consensus view would suggest.

The economy isn’t out of the woods, and joblessness is still at its highest point since the Great Depression. It’s likely that continued fiscal support will be needed to reduce the risk of a relapse. Perhaps jobs will return more quickly than anticipated and maybe the bottom in the economy and the jobs market won’t be as dire as expected, but it will take time for job losses to be recovered. Labor market conditions are still far from positive — bringing the economy back online and returning all of the sidelined workers to the employment rolls won’t be as easy as flipping a switch.

The bottom line is that much work remains to be done to revive the U.S. economy. The path ahead may still be bumpy, but the May jobs report provides additional evidence that the worst may be behind us and that the recovery appears to be underway.

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