Unemployment falls from record high to 13.3%
In surprising news, unemployment dropped to 13.3% in May, according to government figures released Friday morning, suggesting the economy has passed the high point of the job devastation wrought by the coronavirus and shelterinplace orders.
The unemployment rate fell 1.4 percentage points from April’s 14.7%, which saw the largest monthovermonth spike (at 10.3 percentage points) since tracking began in 1948. Investors welcomed the news, with the three major stock indexes all rising more than 2%.
The Department of Labor said the workforce gained 2.5 million jobs in May, “reflecting a limited resumption of economic activity.” Many economists also credited that to the infusion of Paycheck Protection Program funds, which allowed businesses to rehire workers.
Still, 21 million remain out of work, while the very idea that a doubledigit unemployment rate is good news — it was 3.5% in February — shows the economy’s throughthelookingglass situation.
Jobs returned to many sectors, from restaurants and bars to clothing stores to dentistry
practices to construction. Notable areas where jobs were lost included government and education, due to ongoing school closures. Air transportation continued to struggle, losing 50,000 jobs in May, on top of 79,000 lost in April.
Roughly half the jobs created in May were parttime positions, an indicator of continued weakness in the labor market, according to Chris Rupkey, chief financial economist at MUFG Union Bank.
Many service jobs are normally parttime, however, and the drop in the unemployment rate could be a sign of those workers slowly being brought back onto payrolls as some businesses reopen, according to Jeffrey Michael, director of the center for business and policy research at University of the Pacific.
“Obviously, it’s a small step to recovery,” Michael said. “We’re still talking about unemployment rates here of (around) 14% and I expect the numbers over the next few months will reflect very slow improvement and some volatility.”
Permanent unemployment is still on the rise, however, according to a series of tweets from job site Indeed.com’s chief economist, Jed Kolko.
“Permanent unemployment climbed in March, April, and May,” Kolko wrote. “The number of ‘permanent job losers’ is up 79% in the last three months.”
Other experts shared a cautious optimism.
“Assuming we don’t get more waves (of COVID19 cases) or have other big bad surprises, there is reason to hope that this is the worst,” said Erica Groshen, a senior extension faculty member at Cornell University’s School of Industrial and Labor Relations and a former commissioner of the U.S. Bureau of Labor Statistics.
Groshen predicts a fairly sharp rebound, rather than a long, slow slog back to prepandemic employment.
Some sectors, such as construction, manufacturing, logistics, warehousing and health care, should rebound as all states are now easing stayathome orders, Groshen said. But other industries, especially those such as leisure and hospitality that were hit the earliest and hardest, are likely to stay depressed for a long time. Retail also could see a slow recovery as the switch to online was accelerated during recent weeks, she said.
Some 15.3 million Americans, 11.3% of the workforce, described their layoffs as temporary in May. In April, 18.1 million people said their layoffs were temporary. That contrasts with the prior three recessions, when most layoffs were permanent.
This time around, “employers want to hold onto these workers,” Groshen said. “That’s where we can hope for a fairly rapid rebound. It’s much faster to recall a worker to a job they already had, where they’re training, where you don’t have to go through the hiring process. They can start (immediately) being fully productive.”
Jackie Krentzman and Larry Munn of Berkeley are among those expecting that quick rebound. Munn, who teaches anatomy at massage schools as an employee in addition to his freelance massage therapy work, just starting receiving unemployment benefits. Krentzman, who runs Krentzman Communications, obtained a Paycheck Protection Program loan since her business of consulting, writing and editing for nonprofits has cratered.
“We are confident that in the fall or shortly there after our clients and work will come back,” Krentzman said “In fact in my case, as a strategic communications consultant, I wouldn’t be surprised if my workload increases because, unfortunately, organizations are going to be using outside consultants more frequently to cut staffing costs.”
But her latter point about businesses hiring contractors rather than employees points to one way the recovery could be limited. Other gating factors are possible, too, some economists said.
“There are some headwinds,” said Bill Rodgers, professor of public policy and chief economist at Heldrich Center for Workforce Development at Rutgers University, who describes the economic damage as “bonechilling.”
With some states rushing to reopen, there’s a risk of new spikes in infections that would cause the recovery to either slow or even backtrack, he said.
Then there is the growing phenomenon of government layoffs, which up until May had been muted. With every state and locality reporting “yawning budget gaps,” the only hope for stemming those layoffs would be federal funds, he said. It’s still unknown whether that will happen. He sees it as a racial justice issue, because many people of color “have gotten a toehold in the middle class by becoming public sector workers.”
Then there are the potential impacts of the theft and violence that have piggybacked on the otherwise peaceful protests over racial injustice.
“The lootings and destruction of physical property may not affect GDP on a macro level, but it sure as hell will affect gross state products in some places and income growth of some neighborhoods,” Rodgers said.
Some Bay Area retailers say that the vandalism and looting would slow their reopenings.
There’s also the prospect that protests could lead to more infections if not enough people wore masks and practiced social distancing, he said. A related issue: Police arrested some 10,000 protesters nationwide in the past week, according to an Associated Press tally. If those people were not separated during processing and jail time, that, too could cause more infections.
Meanwhile, Bay Area companies are in no hurry to reopen offices. Many have told their employees they can continue to work from home for months to come, and that their return to offices will be voluntary. While those whitecollar employees still have jobs, if downtown areas remain ghost towns, a myriad of other folks will lose out.
Big companies “provide the bulk of customers for local cafes, convenience stores, a network of retail services,” said Michael Bernick, a lawyer with Duane Morris and former head of the state Employment Development Department. “It was sobering” to read a Chronicle report that most are continuing with workathome policies.
The Chronicle’s Layoff Tracker shows 132,000 jobs lost in the region with hotel, restaurants and retailers taking the brunt. Just like the official numbers, that is an undercount as it is based largely on state filings from companies with over 75 total employees that must account for mass layoffs and does not include small businesses or the selfemployed.
Some economists expressed skepticism about the Labor report, saying the numbers are actually much worse.
For technical reasons, many workers were incorrectly classified as employed but absent from work, Stephen Levy, director of the California Center for the Continuing Study of the Economy, said in an email. Properly denoting them as unemployed would have raised the unemployment rate to 16.3%, higher than in April.
“I think this is a big head fake and will be revised,” he said.
He also sees the job gains as largely due to the PPP funds, which are time limited.
Similarly, Michael Farren, an economist at the Mercatus Center at George Mason University, said adding in the 4.1 million “unemployed but absent from work” plus 6.3 million people who left the labor force since February would have resulted in a 19% unemployment rate.
New claims for unemployment insurance have come down since their March peak of almost 7 million in a single week, but Americans are still filing more than a million claims a week, Rupkey, the MUFG economist, said. Until rehiring and newly created jobs significantly outweigh those losses, a sustained, sizable drop in the unemployment rate is unlikely.
Some economists were concerned that the labor participation rate — the percentage of people either working or looking for work — would drop, as discouraged workers left the labor market. But in one more hopeful sign, labor force participation went up from April to May.