Surprise! One report does not a new trend make but reopening may be occurring sooner than expected.

June 5th, 2020 at 11:23 am

Before even getting to the facts of the case on today’s very surprising jobs report, let me share a few insights.

–One jobs report does not a new trend make.

–Keynes was right.

–Economists are terrible at catching turning points.

–Don’t ignore levels for trends.

In one of the more surprising jobs reports I’ve seen, payrolls rose–as in, went up!–last month by 2.5 million and the unemployment rate fell from just below 15 percent to 13.3 percent (though, as I’ll show, racial disparities may be resurfacing). These monthly reports are always noisy, so we don’t want to completely rethink our priors, but expectations were for unemployment to shoot up to about 20 percent and jobs to tank by another 5-10 million.

So, what happened?!

Well, first of all, let’s start with some context. The payroll figure below shows that job losses in March and April summed to an unprecedented 22 million. Thus, even if this uptake pace continues, it would take a year to just make up lost ground.

Second, we should also recognize that 13.3 percent is recessionary-level unemployment, far above the 10 percent jobless rate peak of the last recession. Again, it will be a long time–I’d guess well more than a year–until we’re back to full employment. Also, if we include a group of workers who are absent from work and may well be unemployed, the jobless rate jumps to about 16 percent (note: with that same adjustment, April’s rate was 19.7 percent, meaning the rate fell even faster last month if you include these absentees).

Third, in my last month’s jobs report, I noted that the magnitude of the shock dampened the usual disparities between changes in white and non-white labor market indicators. Also, the fact that Black and Brown workers are disproportionately “essentials” is also a factor limiting the usual disparities we see in downturns, where non-white’s indicators deteriorate faster than whites. As the table below shows, today’s report may reveal those disparities resurfacing.

Fourth, we knew this was coming. It just may be appearing sooner than we, or at least I, expected. All forecasts show a bounceback in the second half of this year of GDP, jobs, etc, though the strength of the bounce is still contested. Again, if this sticks, it means that bounce started before we thought it would.

Fifth, as noted above, Keynes was right! There should be no question in anyone’s mind that the fiscal and monetary actions taken to ameliorate the downturn and hasten the recovery have been effective.

Turning back to today’s numbers, the table below suggests some gaps are developing in the Black and Hispanic unemployment and employment rate changes. Since February, for example, the Hispanic jobless rate is up 13.2 percentage points compared to 9.3 points for whites. To be clear, those are both huge spikes in unemployment over just a few months, but historical patterns predict that such diversion will continue.

Source: BLS

The next figure is designed to provide some context for understand where we are and the depth of labor market weakness that still prevails. It first shows how payrolls fell off a cliff as we shut the economy down in the pursuit of control the spread of the virus. The uptick, while very welcome, clearly doesn’t significantly change the picture. It would take almost of year of gains of May’s magnitude to get back to where we were.

Source: my analysis of BLS data.

But as the forecast line shows, just getting back to where we were–i.e., gaining back 22 million lost jobs–would be under-performing relative to the pre-pandemic trend. To get back to that trend would require an extra 3.5 million jobs.

Other revealing numbers from the report:

–The problem facing state and local governments is still as real as ever. Since February, their combined job losses are 1.6 million, 8 percent of their total jobs. These sectors desperately need fiscal relief, like by yesterday, or they’ll have no choice but to continue aggressive layoffs of essential workers.

–As Martha Gimbel pointed out on Twitter, the payroll jobs diffusion index, which tracks the percent of industries adding jobs, went from 4 percent in April and 70 percent in May, the biggest monthly jump on record. If that holds, it means a much larger set of both industries and firms is reopening sooner than expected.

–After growing almost 5 percent in April over March, nominal wages fell a percent last month. These weirdly large monthly changes are being driven by “composition effects:” many low wage workers left the labor market in April, kicking up the change, and returned in May, pushing it back down.

–Speaking of that, one number I’m tracking is the share of unemployed workers on layoff, meaning those who could be quickly called back to work as firms reopen or ramp back up. That share was a hugely elevated 78 percent in April, but was expected to perhaps fall sharply in May, as temporary layoffs became permanent. That didn’t happen, and the share remains elevated at 73 percent, implying a large share of the unemployed are still at least somewhat attached to work.

So, does this mean those of us who expected a much worse jobs report should sharply update our priors? Surely not based on one jobs report. That said, my sense is that there is real information in today’s report telling us that our aggressive fiscal and monetary responses to the sharp downturn have probably helped to pull the recovery forward. Even so, the return to full employment is many months, if not years away, unemployment is still extremely high, and millions of Americans are still experiencing deep and lasting economic shortfalls.

In other words, our countercyclical repair work is helping, but it’s far from complete.

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3 comments in reply to "Surprise! One report does not a new trend make but reopening may be occurring sooner than expected."

  1. Dave says:

    My personal belief is that this is an inflated number. But, as a friend, I’ll try to talk to you about this behind closed doors eventually.

    I’m not talking publically about my view of the numbers of the BLS anymore. I’m certain I’m right, just as others are. The difference is I have no financial interest in the truth. I only have an interest in the truth.

  2. Dave Pechacek says:

    My wife isn’t believing me that I have thought of some innovative ideas on how to help the world economy. I’m pretty sure you agreed with me recently. I blow by this stuff pretty quickly, so I just don’t dwell.

    If you could email my wife and just tell her that her husband has done some potentially good things for the world, it would help a lot.

    Coming from Joe Biden’s economist, it would mean a lot.

  3. Anon7 says:

    > Fifth, as noted above, Keynes was right! There should be no question in anyone’s mind that the fiscal and monetary actions taken to ameliorate the downturn and hasten the recovery have been effective.

    I doubt it. The shock of this recessions is quite rare, but it was instigated by another credit expansion which led to a consequent bust in March, while simultaneously local government mandated a lockdown affecting productivity in the economy. So it’s like synchronization of a credit bubble and a demand shock.

    The fast recovery is of course not the results of “stimulus spending” but rather states lifting restrictions or as they say “reopening”. This is more of a compelling explanation.

    The Keynesian remedy is based on a fallacy not an economic truth sadly, more of this here: