Jobs Report Not Really All That Surprising

I am a bit taken aback at how shocked so many are about the new jobs report showing that net hiring in May was positive.  For regular readers here I have made several posts here noting that the US economy was almost certainly growing, probably for at least a month. The most recent was my one a few days ago on Rising Oil Demand, and an earlier one, where I was vaguer about the US economy, was the one on Rising Carbon Emissions.  It has been clear to me that the US economy hit bottom in terms of output about a month ago, which put it about a month behind the world economy as a whole and two months behind China.  All of this correlates with how the relative patterns of the pandemic have gone, with China a month ahead of most of the world and about two months ahead of the US.  I think it has been pretty clear that US GDP has been growing, so nobody should be all that surprised that the labor market has turned around and net hiring is now positive.

How did all this confusion come about?  I think the issue is that we get weekly reports on fresh layoffs as measured by new applications for unemployment insurance while we only get monthly reports on net hiring, with our monthly BLS reports such as the one that came out today and surprised the heck out of so many observers who should have known better.  I note that I did not forecast an increase in net hiring, but I had avoided making any forecasts on employment beyond the comment that it is a lagging indicator behind output, which would allow for net hiring to have still been negative. But I was somewhat mystified by what seemed to be such an disjuncture, clear evidence GDP was rising while there were these ongoing weekly reports of many more getting laid off.

The answer is now fairly clear.  Indeed lots of layoffs are happening and probably will for some time to come.  But, not only have those numbers been falling, but the ongoing layoffs are increasingly concentrated in certain sectors, such as education where net hiring was negative in May.  Indeed, we are likely to see a surge of layoffs in the local and state government sectors as those have not seen revenues rise and are not getting federal aid and also face balanced budget constraints.

However, hiring has been going on in other sectors, not publicly reported until today. Among those are hospitality and tourism, construction, and manufacturing (hence rising oil demand and carbon emissions).  Some numbers I have seen on some blogs, so not sure they are accurate, include a claim that a full 54% of the hiring occurred in the restaurant sector.  Yes, there have been a lot of reopenings there, if still somewhat limited.  Another odd figure Tyler Cowen reports on MR is that supposedly 10% of the new jobs are in the dentistry sector. Really? Who am I to say.

I do note that by some alternative procedures than reported, the unemployment rate should be 3% higher than reported, and thus would have increased.  Nevertheless, it does seem that there was a net increase in jobs during May.

What does this portend for the future?  I remain doubtful of a "V" shaped recovery, despite a lot of crowing about such today. This growth is so far fairly slow, and the decline in the unemployment rate not all that dramatic.  The pandemic is still expanding in some states, with Florida hitting a new daily high for new cases on Wednesday, even if new cases are gradually declining nationally.  Even if there is no second wave, fear of such and the continuing presence of the virus will hinder rapid growth for some time, probably at least through most of the third quarter. But I would say that the probability of a "U" shaped recovery has probably risen, with a possibly much more rapid growth rate in the crucial fourth quarter if indeed the virus continues not only to decline but to really stay down, thus reducing peoples' fears and allowing them to really get out there and spend and "go back to (almost) normal."

Barkley Rosser