The nascent awakening of the U.S. economy in May resulted in 2.7 million workers being recalled to their jobs, 2.5 million jobs created and a decline in the unemployment rate to 13.3%.
The impressive number of recalled workers implies three takeaways from the May employment report:
- The Paycheck Protection Program loans likely worked.
- The notion that the $600 extra per week served as an incentive for those furloughed not to return to work was oversold.
- The Pandemic Unemployment Assistance aid turned out to be a bridge, not a barrier, to normalization of the labor market.
Given the elevated nature of both the unemployment rate and underemployment rate, policymakers have no room to become complacent and little margin for error in the formulation and implementation of policy.
Among those not on temporary layoff, the workers permanently out of work continued to rise, increasing by 295,000 in May to 2.3 million. The underemployment rate — those out of work, discouraged, marginally attached or working part time for economic reasons — stands at 21.2%.
The lift in recalled workers does not mean that the 20.9 million unemployed will not require sustained policy attention.
The reopening of firms resulted in a large increase in leisure, hospitality, goods-producing and construction jobs. In May, employment in food services and drinking places rose by 1.4 million, accounting for about half of the gain in total nonfarm employment.
This data at the very least is aligned with near real-time data on mobility, road congestion and store re-openings, which is an undeniably positive and encouraging development. A number of weeks ago, we noted that the economic free fall had ended and to a certain extent this data validates that view.
But this data is not aligned with the weekly jobless claims data and it will take a couple of more months to ascertain if the data is the result of seasonal issues linked to the reopening of the economy or if the weekly data proves more durable. At this point, we simply do not know.
One thing we do know, however, is that the policy implications of the recall of 2.7 million workers does not mean that the 20.9 million unemployed people will not require sustained policy attention. Both the fiscal and monetary authorities will need to follow through on their current respective policy paths to ensure that whatever job gains from the May report that prove durable are not due to complacency by policymakers.
The loss of 585,000 government workers is a preview of what is to come should there be no aid to states and municipalities with holes blown in their budgets and balance sheets. The success of Paycheck Protection Program loans and the coming opportunity to borrow through the Federal Reserve’s Main Street Lending Program imply that there should be further large worker recalls as the damage to the labor market has likely peaked.
The labor force participation rate improved to 60.8% and the employment-to-population ratio improved to 52.8%. The average duration of unemployment stands at 9.9 weeks, while the median duration of unemployment rests at 7.7%. This data strongly reaffirms the need for sustained policy attention in 2020.
Average hourly earnings increased by 6.7% on a year-ago basis, while falling 1% on the month. This data should be put in the context of permanent job losses, which disproportionately affect those down the income ladder.
Much more encouraging was the increase of 1.5% in total private hours worked, the 2.4% increase in overtime and the 2.1% increase in manufactured hours worked. Aggregate hours increased by 4.3%. All imply a robust rebound in June household spending off the recession lows observed in April.
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