The economy unexpectedly gained 2.5 million jobs in May after record losses the prior month as states began allowing businesses shuttered by the coronavirus to reopen and many Americans returned to work.
The unemployment rate fell to 13.3% from April’s 14.7%, which was the highest since the Great Depression.
Economists surveyed by Bloomberg had reckoned that eight million jobs were shed last month following 20.7 million losses in April.
“The biggest payroll surprise in history, by a gigantic margin, likely is due to a wave of hidden rehiring,” says Ian Shepherdson, chief economist of Pantheon Macroeconomics.
Stocks jumped on the news. In early trading, the Dow Jones industrial average rallied 700 points and Standard & Poor’s 500 climbed 2%.
May’s shocking increase in payrolls upended virtually every economist’s predictions for another month of massive losses, though less severe than April’s. Although states have started letting businesses gradually reopen in phases, the Labor Department’s survey was conducted in mid-May, relatively early in that process.
And Labor on Thursday said about 20.1 million Americans were receiving unemployment checks during the week ending May 16. To be sure, not all of those getting benefits are unemployed. Some were on furlough or temporary layoff while others endured reduced hours.
A hint that the labor market could have turned around so swiftly was that about 90% of those who were unemployed in April said they were on temporary layoff. In May, the number of people on temporary layoff fell by 2.7 million to 15.3 million. Meanwhile, the ranks of those who permanently lost jobs increased by 295,000 to 2.3 million.
Another inkling was that payroll processor ADP reported 2.8 million private-sector job losses in May, below the nine million expected. But that’s still very different than a similar-size job gain.
In May, nearly after industry partly reversed the prior month’s huge losses. Leisure and hospitality, the sector hardest hit by the pandemic, gained 1.2 million jobs following 7.5 million losses the prior month. Retail added 368,000 following 2.3 million losses.
Construction added 464,000 jobs, recovering about half of the positions shed in April. Manufacturing added 225,000 jobs following 1.3 million losses. Healthcare added 312,000 as many physician and dental offices reopened.
And professional and business services added 127,000 jobs after 2.2 million losses.
Although the big jobs rebound began a month earlier than expected, the labor market and economy still face a long and grueling road to recovery. The economy shed 22.1 million jobs in March and April after Labor revised up the losses by 642,000 Friday, wiping out nearly all of the gains since the Great Recession of 2007-09.
Oxford Economics expects a strong recovery the second half of the year as businesses continue to reopen but it reckons the economy will recoup only about 60% of the jobs lost by year’s end, leaving unemployment close to 10%.
“It’ll be a long time before the labor market is anywhere near back to its pre-virus state,” says economist Michael Pierce of Capital Economics.
And Leslie Prestom of TD economics says the rising share of permanent job losses in May “implies a longer period of recovery.”