It appears optimistic stock investors have for the moment won out versus more dour economic forecasters.
The US Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy gained 2.5 million jobs in May, surpassing economists’ predictions for a 7.5 million loss. This comes on the heels of April’s report, which posted the largest contraction in the history of the data series since its inception in 1939. As seen in the LPL Chart of the Day, the unemployment rate fell to 13.3%, while average hourly earnings fell 1% month over month, the result of lower-wage workers rejoining the workforce.
“The actual number came in 10 million higher than what the economists were expecting,” explained LPL Senior Market Strategist Ryan Detrick. “This is a major step in the right direction that the economy could be back online much sooner than most expect.”
The overwhelming majority of industries experienced jobs gains, but those hardest hit in April’s report saw the biggest snapbacks. The leisure and hospitality industry gained 1.2 million jobs last month, while construction gained 464,000 and manufacturing gained 225,000. State and local government jobs continued their downward trend, however, losing 571,000 jobs for the month.
The reversal of the overall trend observed in this report presents a strong case that the worst of the damage to the labor market is behind us. While the current unemployment rate is still dangerously elevated, based off this report, and timelier indicators of the labor market’s health, April may mark the peak in unemployment this recession. The risk is that those classified as employed but absent from work show up as unemployed over the next month or two.
While today’s data to a degree validates our sanguine view of the prospects for a sharp economic rebound, it is too early to signal the “all clear.” The initial jolt from reopening efforts was always going to inject immediate life into rock-bottom economic reports. Whether the economy can continue to recover at a similar pace or whether it stagnates from here in the absence of a vaccine is more debatable. Regarding the labor market’s health, we will continue to monitor weekly claims data to help determine whether temporary job losses are increasingly becoming permanent.
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