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America’s unemployment rate falls to 13.3% as economy posts surprise job gains

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The American economy just got a shocking piece of good news: The job market may be recovering well ahead of schedule.

The US unemployment rate surprisingly fell to 13.3% in May, as the economy gained 2.5 million jobs.
It was the largest monthly gain in new jobs since the Bureau of Labor Statistics started tracking the data series in 1939.

The labor market rebounded from April’s drastic losses, when a revised 20.7 million jobs vanished. The unemployment rate last month soared to 14.7% as businesses shut during the coronavirus lockdown.

The Labor Department noted that during the pandemic, millions of workers were misclassified as “employed but not at work,” when they should have been counted as “unemployed on temporary layoff.” If it weren’t for those misclassifications, the unemployment rate would have been higher — around 19.2% in April and 16.1% in May, not including seasonal adjustments.

Still, economists’ estimates for the May report were way off, with expectations around 20% and about 8 million jobs lost.

Forecasts were miles off

How could the experts be so wrong? Well, this downturn isn’t like any others.

The economic shutdown was engineered. This has never been done before and it made it hard for economists to predict how the real world would behave.

While flipping a switch to “turn the economy off” worked, it wasn’t clear how the reverse would work. Even after the buoyant May jobs report, there are plenty of unknowns, and economic forecasts could continue to fumble, said Nela Richardson, investment strategist at Edward Jones.

“There is no underselling it, this was a huge surprise,” said Daniel Zhao, senior economist at Glassdoor.
The jobs report is showing the first green shoots of the reopened economy — even though the unemployment rate is still higher than during the 2008 financial crisis, Zhao said.

But the gradual reopening of the economy actually added new jobs rather than eliminating further positions.
Construction jobs, for example, increased by 464,000 in May, gaining back nearly half of what they lost in April. Construction activity is part of the first phase of reopening.

“These 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 it,” said William W. Beach, commissioner of the Bureau of Labor Statistics, in a statement.

President Donald Trump took credit for the better than expected report on Twitter, calling the numbers “incredible.”

“We’re going to be back and we’re opening our country,” said Trump during a press conference Friday morning. “And if you look at the lockdown governors … the ones that are most energetic about opening, they are doing tremendous business and that’s what these numbers are all about.”

Following the shutdown of the economy in March, predicting what a reopening would look like and whether the labor market would bounce back proved difficult for economists.

Friday’s report provided an answer, but it doesn’t mean America is in the all clear yet.

“Just as much as we were hoping that job losses were temporary, we have to make sure that the job gains are permanent,” said Richardson.

The recovery is a good sign that the hoped-for rebound from the pandemic downturn is going to be faster than feared. Hopes for a V-shaped recovery, which had been all but abandoned following the April labor market numbers, might be revived.

“The labor market holds the keys to the economic trajectory,” Richardson said.

We’re yet not out of the woods

Even with the surprising bit of good news, the job market is still in a deep hole, with nearly 20 million fewer jobs than in February.

A wider measure of unemployment, known as the U6 or underemployment rate remained elevated, at 21.2% in May, showing more than one in five American workers were either unemployed, working part-time “for economic reasons” or had dropped out of the labor force in recent weeks.

The declining headline unemployment rate also doesn’t tell the story of discrepancies between demographic groups. For example, overall unemployment went down, but white workers were the ones reaping the benefits.

The unemployment rate for black workers stayed more or less flat at 16.8%, while the unemployment rate for white workers fell to 12.4%.

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