Economists often miss the mark, but they rarely miss it by as much as they did with their employment forecasts for June.
The consensus forecast anticipated a loss of more than 7 million jobs on top of the stomach-churning 20.5 million positions shed in April. Instead, employers added more than 2.5 million jobs, reducing the unemployment rate to 13.3 percent, down from April’s 14.7 percent and well below the 19 percent rate analysts had feared.
Amid continuing concerns about the pandemic, as virus infection rates in many states continue to rise, and against the backdrop of worldwide protests against racism following the murder of George Floyd, the Department of Labor’s monthly employment report brought a welcome dose of good news.
Some analysts said the unexpected improvement demonstrated that federal efforts to cushion the pandemic’s economic blow – especially the Payroll Protection Program designed to support small businesses and prevent layoffs – were working, and that, as a result, the economic downturn would be shorter and less damaging than feared.
“The [employment gains] suggest that the US economy is more resilient than expected,” Seema Shah, chief strategist at Principal Global Investors, told CNBC.com.
But most analysts were more restrained, acknowledging the improvement, but cautioning that the employment numbers are still dismal and the prospects for a speedy recovery far from assured.
“A Very Deep Hole”
“Payrolls are still down by nearly 20 million since February,” Betsey Stevenson, professor of public policy and economics at the University of Michigan, told MarketWatch. “We remain in a very, very deep hole,” she added.
“We are still 13 percent below [pre-crisis] employment level,” Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA), agreed, ”and the unemployment rate of 13.3 percent is the second-highest level since the Great Depression. This still represents an unbelievable amount of distress for almost 21 million households across the country.”
Analysts pointed to several indicators suggesting that the employment numbers should be ingested with large quantities of salt:
- Continuing claims for unemployment compensation are trending downward, but remain high.
- Most of the job gains resulted from the rehiring of employees who had been temporarily laid off; many of the pandemic layoffs will be permanent, analysts caution, which will keep the job loss total and the unemployment rate elevated.
- More than 10 million respondents to the employment survey reported that they are working part-time because they can’t find full-time employment – a record for this response.
- Federal assistance programs have helped keep American households solvent during the pandemic lockdowns. But the employment gains reported for April may persuade lawmakers that additional assistance isn’t needed, “and that would be a massive mistake,” George Pearkes, global macro strategist for Bespoke Investment Group, wrote in Business Insider. Households will need continuing support, Pearkes and other analysts argue, until the economy has regained its footing and the employment gains have proven to be sustainable.
One of the key – and as yet unanswered – questions going forward is how quickly American consumers will resume their normal activities and their normal spending patterns. Some surveys suggest that pace may be slow, as concerns about infection outweigh the desire to shop, dine out, and engage in other economy-boosting activities.
After plummeting in March and April, the Conference Board’s consumer confidence index recovered somewhat in May, responding to the gradual lifting of shelter-at-home orders in most states. But despite the “moderate” increase in short-term expectations, “consumers remain concerned about their financial prospects,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a statement. “While the decline in confidence appears to have stopped for the moment,” he added “the uneven path to recovery and potential for a second wave [of infections] are likely to keep a cloud of uncertainty hanging over consumers’ heads.”
Clouds Over Housing
The housing market continues to reflect that “cloud of uncertainty” in some sectors, while showing signs that it is lifting in others. Home sales statistics reflect the former (lingering clouds) while purchase mortgage applications and home prices the latter – patches of blue in a cloudy sky.
Mortgage applications increased for the sixth consecutive week in the week ending May 22nd, posting a 9 percent week-over-week gain that pushed the Mortgage Bankers Association’s (MBA’s) composite index into positive territory. Applications have increased by an aggregate total of 46 percentage points since mid-April. Home price growth, meanwhile, increased at an annualized rate of 4.4 percent in March, compared with a 4.2 percent annual gain for February.
Existing home sales, by contrast, continue to reflect the pandemic’s bruising. Sales tanked in April, falling nearly 18 percent below the March total – the steepest monthly decline in nearly a decade, according to the National Association of Realtors (NAR). Pending home sales also cratered in April, posting the second consecutive monthly decline that exceeded 20 percent. This NAR index has declined by almost 34 percent, year-over-year.
Inventories, which have been chronically depleted, continued to shrink in April, with 1.47 million homes available for sale, 20 percent below the year-ago level. Industry analysts generally agree that the continued increase in home prices reflects a shortage of existing homes for sale rather than an increase in demand for them.
The new home market seems to be benefitting from that shortage. Sales in this sector, which had been expected to decline, instead increased by 0.6 percent in April, according to data compiled by the U.S. Census Bureau and the Department of Housing and Urban Development. A preliminary report from John Burns Real Estate Consulting predicts a 21 percent year-over-year gain for May, based on a survey of 300 builders nationwide.
“We have definitely seen green shoots in the last month,” Margaret Whelan, chief executive of Whelan Advisory, told the Wall Street Journal. “The question is whether or not that is going to be sustainable.”