New jobs report yields confusion, but also pleasant surprises

Despite potentially misleading figures stemming from a “misclassification error,” May’s jobs report from the U.S. Bureau of Labor Statistics (BLS) came up surprisingly rosy, reflecting the nascent renewal of economic activity curbed by the COVID-19 pandemic.

According to the report, total nonfarm employment grew by 2.5 million in May, knocking the unemployment rate down to 13.3%. That’s down from April’s nominal 14.7% rate — highest since the government began tracking the statistic in 1939.

Some sectors hardest hit by the coronavirus crisis saw several jobs return. Food and drink establishments, for example, regained 1.4 million jobs, comprising more than half of the total employment gain. The greater leisure and hospitality sector on the whole added 1.2 million jobs — with food/drink gains partially offset by continued losses in accommodations — while construction, healthcare and retail also saw large additions.

The jobless rate decreased for several worker groups, including adult men, adult women, white workers and Hispanic workers. And while the number of people who lost jobs permanently continued to grow, increasing by 295,000 to 2.3 million in May, the number of unemployed individuals on temporary layoff fell by 2.7 million.

The employment picture looks further upbeat when compared to economist projections, with some predicting more job losses of around 7.5 million.

“The economic data in May has thus far come in better than expected,” said Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association (MBA). “This points to an economy that is beginning to rebound from the impacts of the pandemic.”

“The surprising strength in nonfarm employment and decline in the unemployment rate is more improvement than we expected to see this soon as businesses start to reopen,” concurred Mark Vitner, senior economist at Wells Fargo. “While the economy is now on the road to recovery, that road is likely to have many twists and turns along the way.”

Considering the continuing job market havoc caused by the ongoing outbreak, not all the news was bullish. The unemployment increase wrought by coronavirus, for example, remains disproportionately felt by minorities. Despite the unemployment rate improvement for Latino workers, for example, their 17.6% jobless share is still highest for any ethnicity. And the unemployment rate grew slightly for African Americans, moving to 16.8% from 16.7% last month.

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Further muddying the picture is the aforementioned “misclassification error” noted by the BLS in its own report. A large number of employed workers who were absent from work due to coronavirus-related business closures were miscounted as “employed” due to errors during household survey interviews. Interviewers were instructed to classify such workers as unemployed, but according to the report, “it is apparent that not all such workers were so classified.”

“If the workers who were recorded as employed but absent from work ‘due to other reasons’ … had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis),” the report said. “However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.”

The error, which may also have affected past months’ numbers, likely severely understates the negative impact of the pandemic on the country’s economy. Accounting for misclassified workers could theoretically bring the “real” unemployment rate up to somewhere above 16%; doing the same for April’s sample data would likely raise that month’s jobless figure close to 5%, moving the total rate to almost 20%.

The data confusion underscores the unprecedented nature of current events while also making a true quantitative reading of the employment numbers more difficult than usual. Taken interpretively, while the error suggests that the jobless rate may have fallen more in May than the numbers indicate, it also points to a larger hole for the economy to dig out of. Zillow economist Matthew Speakman noted that “the report’s headlines underestimate the true extent of turmoil in the labor market.”

“Note that we are still [nominally] 13% below the level of employment pre-crisis, and the unemployment rate of 13.3 is the second highest level since the Great Depression,” said Fratantoni. “This still represents an unbelievable amount of distress for almost 21 million households across the country.”

Nevertheless, consumer optimism as the country slowly reopens continues to help fuel the relative robustness of housing demand.

“The housing market is helping to lead this rebound,” Fratantoni continued. “[The MBA has] highlighted the sustained seven-week increase in purchase applications, including two consecutive year-over-year gains. This morning’s report also revealed a sharp return in construction employment, indicating that homebuilding is on the mend, which should help to further boost a broader economic recovery.”

Overall construction employment saw a nominal 464,000-job upturn in May, after revised BLS figures showed an April decrease of 995,000. After a similarly steep drop in April, residential construction jobs grew by a reported 226,000 in May, bringing total residential building jobs to 2.7 million.


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