A Stunningly Strong Jobs Report
The US Economy Adds 2.5 Million Jobs and Unemployment Drops
Federal stimulus, such as the Paycheck Protection Program and economic impact payments appears to be helping. In a shocking change from last month, the US labor market reversed course from April, adding 2.5 million jobs in May. The unemployment rate reflected the reversal, dropping to 13.3 percent for the month. While the economy still has a long way to go, this report provides early evidence that the green shoots of recovery are now growing.
Top Takeaways from the Report
The US labor market showed surprising strength in May, adding 2.5 million jobs and reversing some of the terrible April job losses. One of the most shocking aspects of the report is that the consensus estimates, which predicted a loss of 7.7 million jobs, were so inaccurate. This report provides early signs that the economy may be recovering more quickly than anyone expected, as pandemic-related restrictions were loosened around the country.
Similarly, the unemployment rate, which was expected to approach Depression Era levels of close to 20 percent, instead dropped from 14.7 percent in April to 13.3 percent in May.
Other indicators from the jobs report showed similar strength. The labor force participation rate, which measures the share of the population that is either working or looking for a job, was expected to drop from 60.2 percent to 60.0 percent. Instead, it increased to 60.8 percent. This shows that not only are more people returning to jobs, but more people are moving off the sidelines and back into the labor market.
One of the biggest changes in the business environment between April and May was the arrival of stimulus. At the time that employment was measured in April, federal assistance passed in the CARES Act had not yet been fully implemented. By the time May employment was measured, the federal stimulus programs had been fully implemented and distributed across the country. Programs in the CARES act likely played a significant role in job growth seen in May, with Zions Bancorporation alone reporting more than 600,000 jobs preserved thanks to PPP loans issued by the bank.
Growth by Industry
The jobs report reflected a reversal in many of the sectors hard hit by the economic contraction.
Employment in the leisure and hospitality sector increased by 1.2 million in May, following losses of 7.5 million jobs in April. Within the sector, employment in food and drinking places rose by 1.4 million last month. This accounts for more than half of the total job gains in the report. This increase was offset by employment in the accommodation industry, which shed another 148,000 jobs in May.
Construction employment increased 464,000 in May. This sector has regained almost half of the jobs lost in April. Construction activity is often an economic driver during economic recoveries and this sector appears to be returning to pre-contraction strength.
Education and health jobs also increased strongly in May (+424,000). Within this sector, gains were led by dentist offices (+245,000), health practitioners (+73,000), and physician offices (+51,000). However, employment in other health related areas continued to contract, including nursing and residential care facilities (-37,000) and hospitals (-27,000).
Retail trade employment was also a mixed bag in May. Overall employment rose by 368,000 in May, following a loss of 2.3 million jobs in April. Employment gains were led by clothing stores (+95,000), automobile dealers (+85,000), and general merchandise stores (+84,000). Lagging industries included electronics and appliance stores (-95,000) and auto parts stores (-36,000).
Other sectors showing strong growth included other services (+272,000), manufacturing (+225,000), and professional and business services (+127,000).
On the other side, employment continued to contract in a few sectors. Government jobs fell by 585,000 in May, following a drop of 963,000 in April. These contractions were especially felt in local government (-487,000) and specifically in local government education (-310,000), due to widespread school closures during the month.
Other sectors shedding jobs in May included information (-38,000), mining (-20,000), and transportation and warehousing (-19,000).
The Bottom Line
While this report shows green shoots starting to appear in the economy, the recovery still has a long way to go. The unemployment rate is still 30 percent higher than it was at the height of the Great Recession of 2008 and 2009 and nonfarm employment in May was 13 percent below its level in February, before the economic impacts of COVID-19 began to take hold.
However, this report shows how strong the economy was before the pandemic hit and how strong it continues to be. The current contraction was caused by an external shock, not by inefficiencies or fundamental flaws in the economy. As we continue to fight the Coronavirus and reopen the economy the underlying strength in the US economy should continue to reemerge.
The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.
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