"Nothing like this has happened before."
That was the response of Bloomberg commentator John Authers to today's jobs report, pointing out that the spread of the unemployment rate compared to the lowest estimate was the greatest on record.
He wasn't the only person shocked by today's BLS report showing that nonfarm payrolls gained by 2.5 million on expectations of a 7.5 million drop with most sectors flat to up, as the unemployment rate dropped to 13.3% vs expectations of a surge to 19.1%. And, as we first noted earlier, while the report clearly confirmed Trump's political message of a V-shaped recovery, the shock was that the surge in jobs came before lockdowns ended. Adding to the confusion is that ongoing Unemployment Claims surged after the April survey period and then they retreated by the end of the May survey period, but even here the increase was 3M+ in ongoing claims.
One explanation for this bizarre divergence came from SouthBay Research which noted that it had previously pointed out problems with Jobless Claims numbers, pointing to the 37 million jump in cumulative claims which included:
- Fraud: 3.7M (extrapolating from Washington State anecdote)
- Seasonal Adjustment: 4M
- Run-rate: 2M
By these estimates, SouthBay calculates that 27 million in non-seasonal Initial Jobless Claims were filed. However, the BLS only recognized only 18M lost Private Payroll jobs (March-May)
This led Southbay to propose the following three options about what is going on:
- Option #1: Employers added 9M jobs from April 13th-May 12th. Somehow, the partial slight re-opening in some states in early May led to an unprecedented hiring spree
- Option #2: The BLS data is just...wrong
- Option #3: The Jobless Claim data is horribly flawed. Incorrect or fraudulent claims ran closer to 30% and not 10% of the total
And echoing what we said earlier, SouthBay concludes that "Today's report confirms what we already knew: that business is back to hiring. The surprise is that it came roaring back BEFORE lockdown ended."
Other Wall Street strategists were no less surprised, as the following collection of soundbites courtesy of Bloomberg indicates:
Jeffrey Rosenberg, BlackRock Inc. senior portfolio manager:
“The message just appears to be about the pace of returning workers relative to the pace of additional layoffs and that’s a clear positive trend that the opening up in the economy across the various states had been better than what everyone was expecting to see out of this report. This is clearly a good sign that the markets had kind of been telling you for a while that we’re getting back to work.”
Kathy Jones, chief fixed income Strategist for Schwab Center for Financial Research:
“This is a big surprise and a good one, but we’re taking these numbers with a grain of salt. It’s a faster pace as the economy opened up than anyone knew. All of this is subject to a lot of revision and recalculation, but the trend indicators would suggest that as states reopen we’re getting people back to work and that’s a good sign for the economy. It’s definitely a positive surprise. I would think if this is an accurate representation of what’s going on, I would expect we would get more positive than negative numbers moving forward. The payroll protection program is maybe working better than people thought and that’s a good thing.”
Seema Shah, chief strategist at Principal Global Investors:
“Jobless claims and ADP data have all pointed to an increase in the unemployment numbers, so these numbers will need to be digested. But certainly the initial signs suggest that the reopening of economies has already started to heal the labor market. Average earnings fell over the month, indicating that the lower paid workers that had initially borne the brunt of the crisis are returning to work – another very positive sign for the US economy. The market response will be resoundingly positive, but it also raises the question: Does the US really need as much policy support as it is receiving?”
Sameer Samana, senior global market strategist at Wells Fargo Investment Institute:
“Payrolls growth came in well ahead of expectations, and showed growth, while most were expecting another sharp loss. The rebound was confirmed by a bounce-back in weekly hours, participation rate, and manufacturing and private job growth. The unemployment and underemployment rates also seem to have peaked. If confirmed by readings in the coming months, this would suggest the worst is over for the labor market, which would be a positive for the consumer, consumption, and economic growth, which we expect to trough in the second quarter. Stocks, rates and the U.S. dollar rose, while gold fell, which tells us that equity markets may have further to run. It’s too soon to tell what level of yields and yield curve steepness can be handled by markets. Past rallies have eventually found themselves struggling with higher rates and higher dollar, both of which tighten financial conditions.”
Tony Bedikian, head of global markets at Citizens Bank:
“Businesses in several states have begun to reopen under new health and safety guidelines, but in the past few weeks, looters have taken advantage of peaceful protests and posed another setback to businesses that were trying to get back on their feet following Covid-19 shutdowns. Barring a second surge of Covid-19, the overall U.S. economy may have turned a corner, as evidenced by the surprise job gains today, even though it still remains to be seen exactly what the new normal will look like.”
Paul Krugman also chimed in, suggesting that Trump was cooking the books:
Well, the BLS reports a GAIN in jobs and a FALL in unemployment, which almost nobody saw coming. Maybe it's true, and the BLS is definitely doing its best, but you do have to wonder what's going on. I've been through a number of episodes over the years in which official numbers tell a story at odds with what more informal evidence suggests; often it turns out that there was something quirky (NOT fraudulent) about the official numbers. This being the Trump era, you can't completely discount the possibility that they've gotten to the BLS, but it's much more likely that the models used to produce these numbers — they aren't really raw data — have gone haywire in a time of pandemic. Whatever happened, these numbers should make you more, not less, pessimistic about the economic outlook. Why? Because they will reinforce the White House inclination to do nothing and let emergency aid expire.
In any case, we are confident that Trump will explain everything that we need to know why the US economy is now fixed. Well... almost.
Will you be showing this chart? pic.twitter.com/balzJLuXeh— Ian Shepherdson (@IanShepherdson) June 5, 2020