U.S. Jobs Focus Shifts Back to Losses After May’s Surprise Gain

After the U.S. labor market posted a surprise improvement in May, the weekly jobless-claims data will remind people that economic pain remains widespread — even if it’s gradually abating.

About 1.55 million Americans filed for unemployment benefits last week, according to the median estimate of economists. While that would mark the 10th straight decline from the record 6.87 million in late March, it’s still more than seven times the pre-pandemic average.

The total number claiming benefits through the regular state programs, which is reported with a one-week lag, are projected to have declined to 20 million in the week ended May 30. That’s still more than 11 times the level prior to the pandemic.

While the weekly report is beset by quirks and data-gathering issues, it helps shed light on the still-elevated ranks of the unemployed. That provides a counterpoint to the market exuberance following the government’s May jobs report, which also had its own data-collection errors that skewed the figures to look more positive.

The Federal Reserve signaled Wednesday it expects to hold interest rates near zero for at least 2 1/2 years to help employment fully recover. Fed Chair Jerome Powell said that “despite the improvement seen in the May jobs report, unemployment remains historically high,” with the pace of recovery highly uncertain and dependent on containing the virus.

In addition to the depressed state of employment, there are several risks that could hold back a rebound or cause a fresh decline. They include a second wave of the coronavirus causing another round of shutdowns and the chance that businesses will lay off workers who were rehired or retained to comply with loans under the government’s Paycheck Protection Program.

“We have to have a little bit of caution” after the May jobs report, said Beata Caranci, chief economist at TD Bank. “Those businesses that reopened — even at reduced capacity — are naturally going to have demand for workers. The question is: do you get back to where you were before? And I think that’s pretty far-fetched.”

“There’s a significant amount of people still displaced,” she added.

Record Contraction

Despite the May jobs gain, most economists still expect a record decline in gross domestic product in the second quarter, with Bloomberg’s survey showing an annualized contraction of 34.4%.

The broader issue is economic activity remaining weak as the unprecedented downturn shuttered businesses and reduced demand permanently in some areas.

By the end of the year, 8 million to 12 million Americans will remain laid-off, particularly in the hospitality and restaurant industries, according to Daniel Alpert, a founding managing partner at Westwood Capital and co-creator of the Job Quality Index, which measures the ratio of high-quality jobs — those with higher wages and longer hours — to low-quality jobs.

Alpert bases the estimate on a step-down in business creation and increase in business shutdowns, or “deaths.” He said a large portion of the gain in May jobs consisted of workers rehired by businesses using the PPP.

That coincided with a sharp drop in continuing jobless claims for the week ended May 16, also the reference period for the May jobs report that captured a jump in employment.

Benefit Transfer

“All it was from a macro standpoint was a transfer of one government benefit for another,” Alpert said by phone. “It’s absolutely not a picture of business and labor markets” coming back and “more importantly it’s not a picture of aggregate demand” returning, he said.

If the PPP program isn’t expanded, employment could eventually weaken again if companies may resume layoffs. The deadline for PPP applications is June 30, so companies facing issues after that can’t apply. Businesses who have already applied have until the end of the year to convert their loan to a grant if they rehire employees.

The monthly labor report and weekly claims figures can appear to tell two different stories. Both are important to understanding the reality on the ground, according to Erica Groshen, former commissioner at the Bureau of Labor Statistics, which publishes the monthly jobs report.

“In the beginning, we saw just entirely job destruction — at least temporarily — and now we’re in a period of time where we have high volumes of both: job creation and job destruction,” she said by phone.

— With assistance by Reade Pickert, Chris Middleton, and Laura Davison

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