May Jobs Report Shows a Light at the End of the Tunnel

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Key takeaways:

  • In May, the economy gained 2.5 million jobs
  • The unemployment rate also fell from 14.7% to 13.3% in May
  • Economists had expected an increase to 19% unemployment

The latest jobs report is a positive surprise for the economy. It shows that rather than losing 7.5 million jobs in May as expected by economists, the economy gained 2.5 million jobs instead. The unemployment rate also fell from 14.7% to 13.3%, even though many expected it to rise.

While it’s important to not place too much emphasis on a single month’s numbers, the fact that the economic data has improved sooner than expected bodes well for the economic recovery and is positive for investors.

Chart: Unemployment improves in May

The unemployment rate decreased to 13.3% in May as the economy slowly reopened. This surprised economists who expected an increase to 19%.

Why Did Employment Improve in May?

Why did the economy gain jobs in May only one month after the worst jobs report in history? Whereas weekly jobless claims focus only on the number of jobs lost, the payrolls report shows the net change in jobs over a given month. This suggests two things. 

First, the reopening of the economy in many parts of the nation has allowed some furloughed workers to be recalled to their jobs and for some that were laid off to find new work. The data shows that the number of temporarily laid off workers fell by 2.7 million.

Second, the pace of layoffs has slowed since March, allowing gains from the reopening of businesses to catch up in May. Even industries that have been hard hit showed some signs of recovery. In particular, the “leisure and hospitality” and “food and beverage” industries increased employment by 2.6 million after huge declines in April. The “retail services” industry also saw an increase of 368,000 jobs after losing 2.3 million the prior month.

While this data is positive, it only reflects the beginnings of the long recovery. The unemployment rate of 13.3% is still well above its peak of 10% during the 2008 financial crisis. Regaining 2.5 million jobs is positive but is only a fraction of the 18 million that are still lost. 

Chart: Total number of jobs gained/lost since 2000

Over 20 million jobs were lost in April, but 2.5 million were regained in May.

Will Economic Numbers Continue to Improve?

All of this data is further evidence that markets are forward-looking, even when investors find it difficult to be. While the economy and the nation still have a long way to go, there is also a brighter light at the end of the tunnel.

If confirmed cases and deaths from COVID-19 continue to decline, businesses are able to reopen safely, and consumer confidence reemerges, then many of the economic numbers could continue to improve. This could drive a recovery in corporate earnings and stock market valuations.

As always, the best approach for long-term investing in uncertain times is to remain diversified and focused on financial goals.

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