Friday, June 5, 2020
Once again, the markets know best — and the experts scramble to figure out what went wrong. For the nonfarm payroll Employment Situation report from the U.S. Bureau of Labor Statistics (BLS) in the month of May, expectations were for a bottoming out in the domestic labor market. Predictions for 9 million additional job losses in the month, and an Unemployment Rate upwards of 20%, were common.
Nuh uh. A gain of 2.51 million jobs last month shocked nearly everyone. The Unemployment Rate fell 1.4% month over month to 13.3%. And these headline numbers come with roughly 500K additional jobs lost in the public sector — mostly on the State and Local levels. Thus, the private sector came back strong with more than 3 million new jobs produced in the last month.
Leisure & Hospitality and Construction came back strong, hiring back many of the employees who had been laid off when the hotels and building sites had closed down to fight the spread of coronavirus. Pent-up demand in these areas has shown up immediately in the data. Basically, all the jobs gains we saw last month were recalling those put on the unemployment line in March and April.
So the U.S. economy is back! The reopening looks to so far be a success, and the markets — up nearly all week on positive sentiment — are absolutely exuberant this morning, The Dow, up every single day of this trading week, came into this jobs report +300; it raced up nearly 670 points before pulling back a tad a half hour before today’s opening bell.
Now for the bad news: revisions to the past two months were both drastically to the downside. March jobs totals were revised downward by 492K positions to -1.4 million, while April shed 150K more jobs to -20.7 million. Also, when we pop champagne corks at a headline Unemployment Rate of 13.3%, we ought to check ourselves a moment — this is still a very bleak number. At the peak of the job losses in the Great Recession, back in 2009, the worst this rate ever got was 10%. We’ve got a third of that yet to gain before we return to that still-dire figure.
Also, one might say these job gains pick all the low-hanging fruit in the labor force: the hotel desk clerks and housekeeping, the truck drivers and cargo loaders, cement contractors, etc. Bringing back employment in other sectors may prove much more difficult, but we won’t know this for another couple months.
At this stage, however, one would be roundly ridiculed for having a negative outlook on employment and the U.S. economy in general. The market continues to price in a smooth-sailing recovery (with no sign of second-wave COVID-19 infections notable in the bullish sentiment), and thus far it has borne out. As the Great Reopening continues, we get to enjoy letting the sunshine back into our portfolios.
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