Jobless rate falls to 13.3% in May amid coronavirus slump

A woman outside a California Employment Development Department office.

By Don LeeStaff Writer

June 5, 2020 Updated 12:10 PM PT

WASHINGTON — The government’s surprising report Friday that unemployment dropped last month suggests that the pandemic-induced recession may have hit bottom, marking what could be the shortest recession in U.S. history but also one that will probably take years to recover from.

The jobless rate fell to 13.3% in May after soaring to 14.7% in April, despite analysts’ expectations that it would rise to as high as 20%. Employers added 2.5 million jobs in May after shedding a record-smashing 20.7 million positions the prior month.

“The bounce-back started earlier than most expected, but don’t get too excited about this one month of data,” said Nick Bunker, economic research director at Indeed Hiring Lab, a global research firm. “Job growth rising by 2.5 million and the unemployment rate dropping by over a percentage point are positive developments. But it’s not clear how enduring this will be.”

California’s unemployment and jobs statistics for May will be released in two weeks and are likely to show the state trailing the nation’s rebound, largely because of the mix of its industries and the fact that it has been slower to lift lockdowns and relax restrictions on businesses. The state’s jobless rate in April was 15.5%.

Some of the improvement in jobs may have been overstated by temporary government support programs, and the U.S. Bureau of Labor Statistics said the actual unemployment rate in May could have been 3 percentage points higher were it not for certain issues related to survey collection.

President Trump nonetheless hailed the report, saying in a hastily arranged appearance in the White House Rose Garden: “We’re going to be back and we’re opening our country.” He urged states to continue loosening coronavirus restrictions.

Democrats noted that the nation is still suffering from the biggest unemployment crisis since the Great Depression. “And Trump says he is joyous?” said Tom Perez, chairman of the Democratic National Committee. “Families are struggling. Hospitals are overwhelmed. Businesses have shut down for good. And Americans are dying every day — all of this was preventable.”

Some of the job gains nationally were due to the reopening of businesses in the South and other parts of the country. Friday’s jobs report was based on surveys conducted during the second full week of May, when 1,100 counties were still on lockdown, compared with 2,600 counties during the April employment survey week, according to Moody’s Analytics.

Moody’s labor economist Sophia Koropeckyj noted that the collection rates for both the household and payroll jobs surveys — from which the unemployment and job numbers are derived — were lower than normal.

And government statisticians said many people may have misclassified themselves in surveys by saying they were absent from work, even though they may have been furloughed and should have been counted as unemployed.

The government’s Paycheck Protection Program also probably has inflated job gains. The $660-billion program, part of Congress’ pandemic relief package, provides business loans that can be forgiven for maintaining or rehiring employees. But some people receiving paychecks under the program are not actually working, and many participating businesses will have used up the funds by July.

Economists on average were expecting another loss of about 7.5 million jobs in May. Instead, payrolls turned up nicely at restaurants, retailers and healthcare services.

David Shulman, a senior economist at the UCLA Anderson Forecast, said if Friday’s employment numbers hold up, “it now looks like April was the bottom,” not May as he had projected.

It also means the pandemic-induced downturn may have lasted fewer than six months, which would be the shortest recession since at least the end of the Civil War in the 1860s, according to the National Bureau of Economic Research, which dates the peaks and troughs of business cycles.

The latest data on auto sales, consumer confidence and manufacturing activity have shown small improvements since their cliff-like drop in late March and April. The stock market has roared back to recover most of its losses and surged on the jobs report Friday, although financial analysts say values look overdone.

Even as overall unemployment dropped last month, jobless rates edged higher for black people, to 16.8%, and for Asian Americans, to 15%. Unemployment was 12.4% for whites and 17.6% for Latinos, both down more than a percentage point.

There was no snapback of jobs in the transportation sector or information services. And state and local governments lost more than half a million jobs for the second straight month, reflecting school shutdowns and rising pressures from shrinking tax revenues.

As of May, total payroll jobs were 19.6 million below the peak of 152.5 million in February, when the jobless rate was 3.5%.

No matter how quickly or completely America opens the doors for business again, many analysts said full recovery is expected to take at least three to five years. If a second large wave of infections occurs in the fall, as epidemiologists say it could in at least some parts of the country, the outlook could be even darker.

“It’s going to be a much more long and arduous recovery of the labor markets,” especially in California, said Mark Schniepp, director of the California Economic Forecast, a private research and consulting firm.

Whereas the Bay Area has weathered the downturn notably better, thanks to its strong technology sector, he said: “We simply have more tourism, more public-gathering types of events, we have more recreation, more sports, more everything that has been shut tight and will not be allowed to open” for some time.

What’s more, the last week’s nationwide protests only complicated matters, with economic uncertainties created by damage to businesses and the potential increase in COVID-19 infections as a result of people abandoning social distancing in mass demonstrations.

“These riots put a new twist on everything. It’s bad from an economic perspective,” said Stephen Moore, a member of Trump’s economic task force. “Just at a time when businesses were starting to reopen and we’re starting to make a little progress — then boom! — we get hit with this.”

William Spriggs, chief economist at the AFL-CIO, viewed the protests as an outflow of the economic disparity and the need to address long-running systemic issues: “The conversations that are flowing are exceedingly important because the share of the workforce that is not white is huge now,” at about 40%.

How quickly the economy and employment recover will depend in large part on policy. Moore contends that more fiscal spending isn’t needed, with the nation’s already massive buildup of debt after roughly $3 trillion of earlier coronavirus relief measures.

Instead, Moore supported Trump’s call for a payroll tax cut, which the president renewed Friday. A payroll tax cut would allow workers to keep more of their paycheck, which could help boost spending and demand, but it doesn’t help those without jobs and would benefit higher-wage earners more.

House Democrats want the next aid package to include additional money for states, another round of direct payments to households and enhanced jobless benefits. Nothing is expected from Congress until July, at the earliest.

House Speaker Nancy Pelosi said that “the May jobs report shows that decisive action by Congress to support small businesses and workers can make a strong difference in our economy.” But the better-than-expected report may further tamp down GOP support for another recovery package.

“The jobs report underscores why Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt before gaining a better understanding of the economic condition of the country,” said Michael J. Zona, spokesman for Sen. Charles E. Grassley (R-Iowa), who chairs the Senate Finance Committee.

Erica Groshen, a labor economist and former head of the Bureau of Labor Statistics, sees important structural changes that could slow the recovery further. They include the shift to more online shopping, telemedicine and remote work. And then there’s the rethinking underway of global manufacturing supply chains, she said, and the way many services operate, including nursing homes, child care and public transportation.

Thanks to the Federal Reserve and large fiscal spending, Groshen said, “we could have a fairly rapid recovery for a period of time. And then after that, I think we face a very long, slow slog for another eight or nine years.”

For Tyler Smith, 51, who with his brother operates two John Deere equipment dealerships in Maine, business has turned out better than expected after an initial 30% drop in sales in March. To bolster sales, he has been offering curbside pickup and doing more online business. Smith added plexiglass in front of store sales desks, social distancing markers on floors and new delivery methods.

He said the federal government’s Paycheck Protection Program loans for small businesses helped him hold on to his 40 employees, and Smith plans to keep everyone on board. Yet he worries about looming inventory shortages as manufacturers have been down, and whether Maine’s economy, driven by tourism, can get back on its feet.

“I don’t know if we’re out of the woods yet,” he said.

Times staff writers Chris Megerian and Jennifer Haberkorn in Washington contributed to this report.