Payroll jobs rose by a surprising 2.5 million as states started to reopen and small businesses leveraged the Payroll Protection Plan (PPP) to bring back workers from temporary furloughs. Much of the increase showed up as a reduction in the number of workers who said they were laid off temporarily. The question is how many of those workers will be able to keep their jobs as the economy struggles to reopen. Restaurants have been pushing Congress to extend the grant period and allow repayment for loans to span five years instead of only two. There are still 15.3 million workers on temporary layoffs. Research by the University of Chicago suggests that more than 40% of those temporary layoffs in April will become permanent in the months to come.
The downward revisions to the payroll employment in March and April are also notable. The report now shows a loss of 1.4 million jobs in March, before any states went into lockdown, and 20.7 million in April. The Bureau of Labor Statistics (BLS) has been trying to play catch-up with its estimates of small business birth and death rates. Much of the downward revision in March was due to a sharp drop in small business formation. The weekly data that the BLS produces suggest that those figures improved in May, albeit from a near standstill in April. The payroll data shows that we have lost a total of 19.6 million jobs since March.
A surge in rehiring in the restaurant sector accounted for more than half of the rise in total payrolls for the month. Much of that reflects the rehiring in anticipation of Memorial Day celebrations. Sadly, the COVID-19 cases and hospitalization have picked up since then, which could deal another blow to restaurants and bars down the road. Gains were strong in construction and manufacturing employment. Both sectors have been able to stagger shifts, acquire the necessary personal protection equipment (PPE) and distance workers to minimize contagion. The major exceptions are in meat and poultry processing plants, which continued to struggle with rising COVID-19 cases in May.
Health care and social assistance jobs rebounded modestly when dentist and physician offices were reopened. Health care is still down 1.3 million jobs since March, with many workers sitting on pins and needles waiting for additional furloughs. Hospitals were hit hard by the cessation of elective surgeries and have announced additional cuts in the months to come. Day care workers came back during the month, helping some women to return to work. Kids out of school, with few summer programs, represent one of the largest hurdles to getting workers back to work over the summer.
Losses were largest in the state and local sectors. Cuts to education dominated those declines, much as we saw during the recovery from the Great Recession. We have lost a total of 1.6 million jobs at the state and local levels, which underscores the headwind due to budget cuts and the need for transfers to states to blunt job losses and support a stronger rebound in employment during the summer and into the fall. Many state and local fiscal years start on July 1. That is when we could see the first blow to employment tied directly to the revenue losses and increased costs associated with COVID-19 at the state and local levels.
Average hourly earnings fell $0.29 to $29.75 after surging last month. The drop reflects the rehiring of low-wage workers. Average hourly earnings rose 6.7% from a year ago, a slowdown from the surge in April when low-wage workers were disproportionately hit by the first round of COVID-related layoffs.
Average hours worked surged to 34.7 as employers attempted to utilize recalled workers as much as possible. That contrasts with the much larger trend in the number of workers forced to scale back on their hours over the last three months. The number of workers forced to accept part-time instead of full-time pay was 10.6 million in May, off only slightly from the record 10.9 million in April.
Separately, the unemployment rate fell to 13.3% in May from 14.7% in April. The participation rate rose sharply as low-wage women and minorities returned to work. The rise in participation among blacks was smaller but still improved. The number of workers reporting they were absent due to COVID as opposed to “unemployed” in May, despite a loss in pay, remained elevated. The unemployment rate would have been over 16% if those workers were properly classified. It is better than what we saw in April, but still high.
Job gains are welcome and suggest that the economy may have hit a trough in May, only two months after the onset of the crisis. Losses remain significant. We really need a new way to talk about recessions and recoveries in a post-COVID world. Calling May the end of the recession really does a disservice to the more than 19 million still unemployed and the extraordinary challenges we face as the economy struggles to reopen with the rate of infection still high. We are dealing with a health crisis first and foremost. We lost 1.4 million jobs before one state went into lockdown as companies and individuals pulled back to avoid contagion. Any spike in contagion could trigger the same response without any additional shutdowns. Fiscal fatigue is also a concern as millions will lose unemployment benefits on July 31 if Congress fails to extend benefits over the summer.
Copyright © 2020 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.