The "jobs numbers" came out this past Friday, and gave surprised economic forecasters plenty to think about over the weekend. Almost every forecaster had predicted a net loss of jobs, the best case scenario was a decrease of 800K on payrolls. So imagine the surprise when the Bureau of Labor Statistics (BLS) reported an increase 2.5 million payroll jobs and the unemployment number fell to 13.3% from 14.7%. What to make of this seemingly "happy" news? Here are some points to think about:
True, the growth rate of jobs over the last month was positive. In terms, of level (number) or jobs, the economy is still is in a deep hole. There are still 21 milion more unemployed people compared to February and the unemployment rate is 9.8 percentage points higher since then.
Whether it is jobs data, GDP data, sales data or medical data, beware of the "yo-yo" effect in a situation like the current one. Dramatic changes in numbers can make percentages (especially those calculated over short periods of time) misleading.
Second, turns out the BLS is struggling to capture the dynamics of labor market due to this novel virus. Traditional, the BLS survey does a good job in telling us about the state of the economy, as based on jobs. There is a question on the survey that asks whether a person is employed but is absent from their job "for some other reason" during the past week (jury duty would be categorized this way). Many people, who were furloughed or temporarily laid off, answered this in the affirmative, and were counted as employed but are in fact, unemployed. The BLS has recognized this issue in their report, and estimates that if these people were re-classified the unemployment rate would have still gone up, but the change would have been from 19.7% to 16.3%.
Mohamed-El-Erian reiterates the previous point about levels vs. growth:
"While welcoming the improvement in the rate of change, we should not lose sight of the overall levels given that Covid-19 has inflicted the biggest shock on the economy since the Great Depression. Whichever of the two unemployment rates you pick (13% or 16%), it is still well above the 10% peak reached during the Great Recession. The 2.5 million jobs reportedly created in May constitute only a small recovery of the 20.5 million lost in April. And pain and suffering are still exhibited every day in long line at many food banks around the country."
Finally, remember the headline unemployment rate number is an overall number. To get a complete picture of the economy, we should also look at how unemployments fares across different socioeconomic groups, regions or industries. Top-of-mind for many right now is probably racial heterogeneity in unemployment. In May, while unemployment fell overall, the Black unemployment rate actually rose slightly from 16.7% to 16.8%.
It remains to be seen how job creation will fare as stimulus measures like the the Paycheck Protection Program wind down, and the longer term prospects for employers becomes clearer. The path towards economic recovery will likely be a long, winding one which a single unemployment report cannot predict.
Discussion Questions
Discussion Questions
