Surprise unemployment drop sparks debate over how fast the economy will rally

The rate reflects parts of the economy reopening in the wake of the coronavirus pandemic.

An unexpected drop in the unemployment rate set off a fresh round of debate on Friday over how fast the economy can rebound from the coronavirus pandemic and how much the government should intervene to help.

The unemployment rate fell to 13.3 percent in May from a peak of 14.7 percent in April, the Bureau of Labor Statistics reported — surprising economists who had widely expected the rate to jump to about 20 percent in May, given that more than 40 million people have applied for unemployment benefits in recent weeks.

The economy gained 2.5 million jobs last month, as states started relaxing stay-at-home orders and opening for business. Markets rallied on the news, with the S&P 500 gaining nearly three percent by mid-day. The Dow Jones Industrial Average was up 3.8 percent.

President Donald Trump and his economic advisers, who have been prodding governors to relax stay-at-home orders, said the numbers show the economy will recover as quickly as they have been predicting. Trump at a Friday news conference compared the pandemic to a short-lived natural disaster and said the numbers are evidence of the “greatest comeback in American history.” 

But some economists warned that the unemployment rate is still at highs not seen since the Great Depression — and that it remains hard to predict whether and how rapidly the upswing will continue. The nonpartisan CBO has estimated that unemployment won’t even near pre-pandemic levels — which was at 3.5 percent in February— by the end of next year.

“The next few months really will reveal a lot,” said Heidi Shierholz, an economist at the left-leaning Economic Policy Institute. “It is very, very hard to measure things right now.” 

The economy lost 22 million jobs in March and April, so is still down 19.6 million jobs, Shierholz said.

Some economists warned that the unexpected number likely understates the extent of the economic pain felt last month. Large numbers of people have been classifying themselves as employed but absent from work in the Labor Department’s survey, and that can artificially suppress the unemployment rate. 

Mark Hamrick, senior economic analyst for Bankrate, cautioned that the May unemployment rate would have been 3 percentage points higher if those workers had been properly recorded.

“You know there’s a lot going on here,” said Hamrick, “One of the very challenging aspects of getting our arms around the current situation is that statistics are fairly stable when the economy is stable, and when the economy is rapidly changing the statistics are rapidly changing as well.”

Hamrick said the unexpected number reflects the “dynamism of the situation,” and the fact that economists have been relying on the weekly unemployment claims figure to measure the recent job losses. 

The unemployment figure reported Friday reflects the situation in the middle of May, which is when the agency surveys Americans to get a snapshot of the workforce.

The lower-than-expected number may also be related to a 15 percent drop in responses to the household survey, which the Labor Department uses to estimate the number of people who are employed. 

“We’re in this moment where we don’t have the luxury of reading and seeing, we have to try to interpret what’s going on,” said Shierholz, who is also a former chief economist at the Labor Department. 

She noted that the positive report indicates the flurry of coronavirus relief bills enacted in recent months to help keep the economy afloat during the pandemic appear to be working.

“The provisions that we’ve implemented, are sustaining income, which means that as things reopen there is confidence and demand there to get people back to work,” Shierholz said. 

The news wasn’t all positive. While the unemployment rate for adult women, adult men, white workers, Hispanic workers dropped from April to May, it rose slightly for black workers to 16.8 percent.

And the number of workers who said they have permanently lost their jobs increased by 295,000 in May to 2.3 million.

The leisure and hospitality industry, which was battered by state stay-at-home orders and shed more than 8 million jobs in April and March, added 1.2 million jobs last month. 

But even as jobs gains were seen elsewhere, employment in government continued to decline, shedding 585,000 jobs in May for a total loss of 1.5 million jobs in two months. 

Most of those losses were in local government — a major employer for black workers, and one factor contributing to the black unemployment rate holding steady even as the overall rate declined.

The jobless rates for teenagers (29.9 percent) and Asians (15 percent) also saw little change from April to May. 

The May jobs report lands amid a debate in Washington over whether to extend the unemployment benefit program created to help jobless Americans weather the pandemic. 

With more than 40 million unemployment claims filed throughout the pandemic, Republicans argue that an additional $600 weekly unemployment payment authorized in a March assistance bill will discourage Americans from getting back to work and stymie the recovery. 

But, former congressional economists from both Republican and Democratic administrations warned lawmakers earlier this week that more aid may be needed. 

A failure to extend the benefits will “hinder our ability to recover,” said Douglas Elmendorf, who led the Congressional Budget Office from 2009 to 2015. He said benefits should stay in place until the national jobless rate falls back down to 6 percent.

This blog originally appeared at Politico on June 5, 2020. Reprinted with permission.

About the Author: Rebecca Rainey is an employment and immigration reporter with POLITICO Pro and the author of the Morning Shift newsletter. Prior to joining POLITICO in August 2018, Rainey covered the Occupational Safety and Health administration and regulatory reform on Capitol Hill. Her work has been published by The Washington Post and the Associated Press, among other outlets.

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Madeline Messa

Madeline Messa is a 3L at Syracuse University College of Law. She graduated from Penn State with a degree in journalism. With her legal research and writing for Workplace Fairness, she strives to equip people with the information they need to be their own best advocate.