In the space of four weeks we’ve seen history made as the US economy posted a record number of job losses in one month, only to be followed by a record number of job gains in the following month.
Over the past few weeks, we’ve seen weekly jobless claims numbers in the millions, albeit declining slowly, while the ADP payrolls reports have been roundly negative as well. Last month, the April non-farm payrolls saw 20.5m jobs lost, while average earnings rose sharply to 7.9% as millions of low paid jobs disappeared.
Against this backdrop it was widely expected that we would see further job losses in the millions, for today’s US employment report, albeit on a lower scale as the US economy began its healing process as lockdowns began to get eased. It was therefore a huge surprise and a complete outlier to see the latest US non-farm payrolls report covering May come in with a positive 2.5m jobs added, against an expectation of 8m jobs lost.
The question being asked now is whether this rebound can be sustained. Judging by the fall in the unemployment rate and the average earnings numbers there is some confidence it can. The return of furloughed workers to the workforce is one, and the most likely explanation for this surprise rise and is supported by the fall in the wages data. If the wages data rises on the back of the loss of low-paying jobs one month, it stands to reason it would fall back again if these jobs come back. This is exactly what has happened, along with a sharp rise in the labour force participation rate, from 60.1% to 60.8%.
Markets have been rising on the prospect that we could see a v-shaped recovery and there is a lot of scepticism around given concerns about a second wave. A v-shaped still seems unlikely, given the extent of the fall down the stairs the economy took in March and April. What this number has done is given markets the confidence to go from taking tiny steps back up the staircase, to bounding up two steps at a time. The problem with that is at some point the market could fall flat on its face.