A closely watched report released by the Labor Department on Friday claimed employment in the U.S. unexpectedly showed a substantial rebound in the month of May.
The Labor Department said non-farm payroll employment jumped by 2.51 million jobs in May after plummeting by a revised 20.69 million jobs in April.
The record spike in employment came as a shock to economists, who had expected the loss of another 8.0 million jobs following the nosedive of 20.5 million jobs originally reported for the previous month.
Employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade, according to the Labor Department.
Most other sectors also saw rebounds in employment, although government employment tumbled by another 585,000 jobs, mostly reflecting local governments laying off teachers.
The Labor Department claimed the improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain the spread of the disease.
James Knightley, Chief International Economist at ING, called the data “simply astonishing given the slow pace of reopening and the fact that more than 12 million people filed a new unemployment claim during the survey period.”
With the unexpected rebound in employment, the Labor Department said the unemployment rate dropped to 13.3 percent in May from 14.7 percent in April. Economists had expected the unemployment rate to surge up to 19.8 percent.
The unexpected decrease in the unemployment rate came as the household survey found employment soared by more than 3.8 million persons compared to the 1.7 million person increase in the size of the labor force.
However, Knightley said there are “some oddities in here,” as are the number of unemployed fell by only 2.1 million, suggesting “new workers appear to have been magicked up out of no-where.”
“The response rate was well down on usual levels so this could be adding to the sense of confusion as well as how people self identify in the range of responses available to them in the survey,” he added.
Meanwhile, the report said average hourly employee earnings fell by $0.29 or 1.0 percent to $29.75 in May after spiking by $1.35 or 4.7 percent to $30.04 in April.
The annual rate of average hourly earnings growth subsequently slumped to 6.7 percent in May from 8.0 percent in the previous month.
Michael Pearce, Senior U.S. Economist at Capital Economics, noted the drop in average hourly earnings reflects composition effects, as low wage workers were disproportionately fired then rehired.
A note from the Labor Department revealed the unemployment rate would have been about 3 percentage points higher if not for the misclassification of persons absent from work due to coronavirus-related business closures.
“In other words, the unemployment rate in April was reported at 14.8%, but was really 19.8%, and in May was reported as 13.3%, but was really 16.3%. The incompetence is breathtaking,” said Chris Low, Chief Economist at FHN Financial.
“The sample size of both establishment and the household reports was smaller than usual and the household survey team misclassified millions of unemployed as ’employed, on temporary layoff’ for a third consecutive month,” he added. “Nevertheless, the gist of the report is convincing.”
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