US employers unexpectedly added 2.5m jobs in May, sending the jobless rate down to 13.3 per cent and easing worries over the damage inflicted by the coronavirus crisis on the world’s largest economy.
After 20.7m lay-offs during the month of April and 1.4m job cuts in March, some of the hardest-hit industries began hiring workers again, including leisure and hospitality, construction, retail, education and healthcare. Government employment, however, suffered 595,000 losses, as cash-strapped state and local authorities continued to cut their payroll.
The improvement in the labour market will revive hopes that the US may experience a more rapid economic bounceback from the virus emergency than feared by many economists and officials. Federal Reserve officials had warned of further job losses on top of those experienced in the first two months of the pandemic and cautioned that a full recovery may not materialise until the end of next year.
However, even with the decline in unemployment, US joblessness remains well above its peak after the 2008-09 financial crisis.
“It appears that businesses began rehiring workers earlier and in greater numbers than expected, a trend that is likely to continue as lockdowns ease around the country,” said Eric Winograd, AB’s senior economist. “To be clear: things are very far from normal in the labour market. But the pace of improvement, if sustained, suggests more reason for hope in the second half of the year than we have seen from any previous data release.”
As protests against racial injustice spread across the US, the labour department reported that joblessness among African-Americans continued to rise last month, from 16.7 per cent to 16.8 per cent, even as the overall unemployment rate declined from 14.7 per cent to 13.3 per cent.
The recovery of the US labour market came as employers and households began seeing the flow of almost $3tn in fiscal stimulus measures approved by the White House and Congress in March to protect the economy from an even deeper downturn.
By May, billions of dollars of federal funds were flowing in the form of direct cheques to individuals, unemployment benefits, and loans to small business, while US equity markets were rallying, partly on the back of the Fed’s moves to aggressively ease monetary policy as the crisis unfolded.
Markets reacted sharply to the jobs numbers, with a deep sell-off in US government bonds and a boost for stocks.
Yields on the benchmark 10-year Treasury surged as much as 13 basis points to 0.96 per cent, their highest level since March 20, before the Fed threw its full weight behind the market.
US stocks surged more than 2 per cent on opening, with the large banks making big gains — Bank of America and Citigroup rose almost 5 per cent and 7 per cent respectively. The advance, if held through the trading day, would give the benchmark S&P 500 its best close since late February, erasing the majority of losses tallied in the virus-induced sell-off.
The S&P 500 has already rallied more than 40 per cent from its March lows, fuelled by central bank stimulus measures that have, in effect, backstopped markets. Some improving economic indicators, including Friday’s unemployment figures, have also provided a jolt of optimism for investors.
US president Donald Trump, who is counting on a strong recovery from the pandemic to bolster his re-election campaign, almost immediately cheered the data. “Really Big Jobs Report. Great going President Trump (kidding but true)!”, he wrote on Twitter.
Later, during a press conference in the White House Rose Garden, Mr Trump continued to tout the report.
“We are bringing our jobs back,” Mr Trump said. “We’re going to actually be back higher next year than ever before. The only thing that can stop us is bad policy . . . leftwing bad policy of raising taxes and green new deals.”
He added: “Today is probably . . . the greatest comeback in American history.”
Democrats in Congress have been pushing for the White House and congressional Republicans to agree on another package of measures to keep the fiscal spigots open but serious negotiations have not started amid disagreements on the size and details of a new round of support.
Democrats want as much as $3tn in additional spending to aid state and local governments and extend jobless benefits beyond their expiration in July, but Republicans and the White House have been seeking a smaller target worth about $1tn centred on more tax cuts.
In light of the better than expected jobs report, some Republicans on Capitol Hill who were skittish about additional spending may become even more sceptical, while Democrats will argue that it is essential to avoid a relapse.
“We don't know what portion of job creation can be attributed to the Paycheck Protection Program and that could lapse without further funding,” said Kristina Hooper, the chief global market strategist for Invesco.
“There is going to be a need still for more fiscal stimulus in the US,” Ms Hooper added, noting that “state and local governments are under enormous pressure.”
Next week, the Fed’s monetary policymakers are due to hold a regularly scheduled meeting but are not expected to approve any major new policy actions, after pushing interest rates down to zero and moving to boost bond purchases on a large scale since the virus crisis took hold.
Some of the details of the jobs report were less encouraging than the top-line figures. The labour department noted a classification error whereby some people had been incorrectly reported as employed but absent from work, instead of temporarily laid off.
Otherwise, the unemployment rate would have been about 3 percentage points higher, on a non-seasonally adjusted basis.
In addition, while the number of workers who were temporarily laid off declined in May from 18.1m to 15.3m, those who had lost their jobs permanently increased from 2m to 2.3m.
“The big question is how willing consumers will be to spend on consumption categories that pose a contagion risk,” said Gad Levanon, head of the labour markets institute at the Conference Board.
“They will probably spend less on categories that both pose a high contagion risk and could more easily be avoided for a while, such as entertainment and flights. A full recovery in employment is unlikely to occur in the next 12 months.”
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