In a Surprising Turnaround, U.S. Adds 2.5 Million Jobs in May
The U.S. economy saw a historic turnaround in May with the surprising addition of 2.5 million jobs – more than twice the previous record monthly gain of 1.1 million jobs in September 1983. May’s strong reversal is due in part to the government’s various economic stimulus programs as well as the reopening of U.S. businesses that were closed due to the coronavirus lockdown.
This initial rebound, coupled with businesses reopening in additional states, portends a more positive outcome for the month of June. However, businesses remain hobbled by reduced revenues because of the pandemic, and May’s job gains may be in jeopardy if the federal Paycheck Protection Program runs out of funds. Another business concern is that generous and extended unemployment benefits may act as a disincentive to returning to work for some, even as the benefits provide critical income to those having trouble finding work.
Why It Matters
May’s record job gain of 2.5 million strongly suggests that an economic recovery is underway, particularly for some of the nation’s hardest hit industries. For businesses looking to grow and ensure they stand the best chance of a successful recovery, it comes down to planning and execution. Identification and research of potential opportunities requires capital, effort and resources. Many companies rightly continue to keep a tightened rein on all three.
As businesses navigate recovery, they can:
- Focus on cashflow, recruitment and market expansion. Ensure there are significant resources to allow for continued potential dips.
- Explore the specifics of your industry and metro area as these will play heavily into the speed of recovery for your business.
- Consider upskilling and cross-skilling practices to bolster new talent acquisition initiatives as the recovery phases progress.
- Reevaluate your people strategies as you benchmark salaries throughout organizations and locations.
The Recovery Begins
The U.S. economy gained 2.5 million jobs in May, a sharp turnaround from the 20.54 million job losses in April. In addition, total nonfarm payroll average hourly earnings increased by 6.7% year-over-year ending in May, possibly reflecting the widespread loss of lower-wage jobs. Combined with two consecutive weeks of generally decelerating continuing claims, these are indications the U.S. is seeing signs of recovery.
The headline U3 unemployment rate, reported monthly by the Department of Labor’s Bureau of Labor Statistics (BLS), fell to 13.3%. But if the number included all persons marginally attached to the labor force, plus the total employed part-time for economic reasons (known as U6 unemployment), the rate decreases from 22.8% in April to 21.2% in May.
Current weekly unemployment claims continue to be the timeliest source of available unemployment data. Coupling today’s BLS unemployment data with the 4.0 million initial claims reported through the weeks ending May 23 and May 30, unemployment estimates range between 13.3% and 23.1%.
Labor Market Performance
- Non-farm payrolls increased by 2.5 million in May
- Unemployment sits at 13.3%
- Labor force participation increased to 60.8%
- Leisure and Hospitality gained 1.2 million jobs, after losing 8.2 million jobs in March and April
- Combined March and April revisions were down by 642,000 jobs
Industry Movement (Survey Reference Week May 12-18)
Leisure and Hospitality: Job gain within this industry in May was 1.2 million, of which 1.4 million were in food services and drinking places. This gain was offset by employment in the Accommodations industry, which lost 148,000 jobs.
Trade, Transportation and Utilities: Gain within this industry was 368,000 jobs, compared to a loss of 3.2 million jobs in the sector in April. Clothing and Clothing Accessories gained 95,000 jobs, Automobile Dealers gained 85,000 jobs and General Merchandise Stores gained 84,000 jobs. Electronics and Appliances Stores lost 95,000 jobs.
Education and Health Care Services: Gain within this industry was 424,000 jobs. In Healthcare, jobs rose by 312,000, including a gain of 245,000 in dental offices. But there were losses in other categories, including Hospitals, which lost 27,000 jobs. Private Education employment gained 33,000 jobs.
Professional and Business Services: Gain within this industry was 127,000 jobs, after a loss of 2.2 million jobs in April.
Manufacturing: Gain within this industry was 225,000 jobs, after a loss of 1.3 million jobs in April.
Government: This industry lost 585,000 jobs, down from April’s loss of 963,000 jobs. Most of the May job loss was in local government, which shed 487,000 jobs.
Construction: Gain within this industry was 464,000 jobs, roughly half of the April loss of 995,000 jobs.
Financial Activities: Gain within this industry was 33,000 jobs, after it lost 264,000 jobs in April.
Other Indicators to Watch
Further evidence of COVID-19’s impact on the economy comes from available data surrounding spending, sentiment and manufacturing. As these statistics are updated, they will serve to inform the speed of recovery.
U.S. consumer spending, the primary engine of the U.S. economy, fell by a record 13.6% in April while personal income rose 10.5% due to the impact of federal-stimulus payments. With Visa’s June 1 release, data suggests that April could constitute the bottom of weak U.S. spending. Visa lists a 70% year-over-year decrease in U.S. charges for travel, but also cites 20%+ growth in Food and Drugstore, Home Improvement and Retail Services. While Visa states that U.S. payments are down 5%, this is a marked improvement compared to April.
Institute for Supply Management PMI®
The ISM PMI, which reports on the manufacturing sector, registered 43.1 in May, an improvement of 1.6 points from the April reading of 41.5 percent. Of the 18 manufacturing industries surveyed, the two that reported employment growth in May were Apparel, Leather and Allied Products; and Paper Products. The manufacturing employment index sits at 32.1 and according to the survey chair, “An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the (BLS) data on manufacturing employment.”
Consumer sentiment, a measure of consumer attitudes, remains relatively unchanged from last month, sitting at 72.3 index points for May. According to the University of Michigan, the CARES relief checks and higher unemployment payments have helped to stem economic hardship. But those programs have not acted to stimulate discretionary spending due to uncertainty about the pandemic’s future course.
For May jobs figures reported by the BLS, it is important to remember that the May 2020 survey reference week for the BLS household survey is May 12-18. This period captures some of the recent rebound but does not contain details from the most recent two and a half weeks.
ThinkWhy continuously monitors and forecasts labor data at all levels, measuring impact to MSAs and businesses across the country. Stay current with us. We are here to support organizations and provide insights during the economic downturn as well as the recovery phase.