The May employment report came as a big surprise to market analysts with 2.5 million jobs added to US payrolls. Analysts had forecast losses of 7.5 million jobs and unemployment at 19%. The current rate of unemployment is 13.3% compared to 14.7% the month before according to the US Bureau of Labor Statistics. 20.5 million jobs were lost in April, and the May labor market report may indicate that things are turning around in the US economy.
- US payrolls added 2.5 million vs. a drop of 7.5 million expected and 20.5 million the month before.
- Unemployment fell from 14.7% to 13.3% vs. 19% expected, which would have been the highest reading since the Great Depression of the 1930s.
- The latest report indicates that the worst may be over for the US economy in terms of the devastating impact seen from the coronavirus outbreak.
The US economy began to reopen towards the end of May, despite staggering figures showing that 100,000 Americans have been killed by the coronavirus since March, making the outbreak one of the worst disasters in the nation’s history. Lockdown procedures loosened in all 50 states last month.
Employment and hospitality added 1.2 million jobs in May after losing 7.5 million the month before, with the bulk of the gains seen in food and services as well as bars. Education and health services, retail trade, and other service industries also increased their payrolls in May compared to April.
Entire yield curve is up, with the 2 year at 0.23% and the 10 year at 0.94%;
— Mohamed A. El-Erian (@elerianm) June 5, 2020
Construction gained 464,000 jobs, recouping around half of the losses seen in April. Education and health services rose 424,000, and retail gained 368,000 after losing 2.3 million jobs the month before. Other services saw gains of 272,000, boosted by a 182,000 gain in personal and laundry services.
Manufacturing recovered 225,000 jobs after losing 1.3 million, and the industry still appears to be in sharp contraction. Even businesses in harder-hit industries have reported increased activities in some cases. American Airlines stated that it would fly 55% of its US routes starting next month, up from 20% in May.
State of the Labor Market
The US economy had been in the midst of a record-breaking period of expansion before the pandemic struck, with unemployment at a 50-year low of 3.5%. The sudden gains in May are perhaps an indication of the underlying strength of the US labor market despite the harsh conditions brought about by the outbreak.
However, unemployment is expected to remain above 10% for at least a year, lasting throughout the upcoming November elections and beyond. Civil unrest throughout the US at the killing of George Floyd will not be reflected in the May report, but may spill out into the June jobs report due next month.
Chief strategist at Principal Global Investors, Seema Shah, commented on the surprising figures, saying "Today's data suggests that the US economy is more resilient than expected. Certainly the initial signs suggest that the reopening of economies has already started to heal the labor market."
“Barring a second surge of Covid-19, the overall U.S. economy may have turned a corner, as evidenced by the surprise job gains today, even though it still remains to be seen exactly what the new normal will look like,” said Tony Bedikian, head of global markets at Citizens Bank.
CIBC economists cautioned against those taking the data as a sign of full recovery, saying “While the gains in employment will look large by historical standards, the rate of increase will be gradual relative to the precipitous drop seen between March and May. Moreover, due to continuing restrictions on some industries to prevent the spread of COVID-19, and the weakening of demand caused by recent job losses, employment will remain depressed relative to pre-COVID counts even in 2021.”
Gold prices have seen a sharp downward contraction following the news. Spot gold last traded at $1,681.95/oz, down -1.94% with a high of $1,721.08/oz and a low of $1,681.22/oz. Gold is now trading near session lows, in sharp contrast to the 600-point surge seen in the Dow Jones earlier today. The May jobs report came as a big shock to financial analysts, skewing models designed to forecast the long-term impact of the coronavirus on the US economy. For now, risk-on appetite has significantly increased in the financial markets.