Behind The Euphoric May Jobs Report Are Some Troubling Signs

After the euphoria, perhaps a reckoning.

We’ve had a weekend to digest the surprisingly strong jobs report data that debuted on Friday, where the Bureau of Labor Statistics reported that the U.S. economy gained 2.5 million jobs.

As a result, the unemployment rate dropped from 14.7 percent to 13.3 percent.

One data point does not make a trend. But the latest information was so strong a reversal from the millions of jobs that were expected to have been lost in May that stocks surged, and the Dow Jones Industrial Average was up more than 3 percent.

Drill down into the data a bit, and a few things come to light. At least part of the gain has been tied to the Paycheck Protection Program (PPP), which while important as a measure that tries to keep small- to medium-sized businesses (SMBs) running and payrolls staffed, is not a long-term support for unemployment.

Against that backdrop, more than half of the net job gains, at 1.4 million — came from restaurants and other eating establishments, which have since April gotten assistance through the PPP. But the stimulus offered through that program is finite even as there have been new rules that allow (forgivable) loans to cover payroll through 24 weeks where the period had been eight weeks.

Beyond that temporary support, the Labor Department has stated that it had data collection issues, where a significant number of workers who are in fact temporarily unemployed had been characterized as being employed; if those people had been classified as unemployed, which would have been the correct designation, the unemployment rate would have topped 16 percent.

It may be the case that many of these laid-off workers who are not actively looking for jobs are able to live on unemployment benefits plus the $600 a week in extra funding that had been approved back in March. Yet the end is in sight for that benefit to expire in July.

And depending on how you look at it, the official unemployment rate does not give visibility into the true employment picture, and perhaps more importantly, hint at the economic impact of working reduced hours. There are other measures of unemployment that take into account “under” employment where people are not actively looking for jobs or have had to work reduced hours. Once those designations are included, the unemployment rate surges to 21.2 percent.

The official unemployment rate also does not take into effect workers who have dropped out of the economy entirely, presumably disheartened by the job search itself.

The “marginally attached” people here are not working, and they are not looking for work. But they could look for work. In addition, this U-6 unemployment rate also includes people who are working part time but who are available to work full time.

The underutilization of workers hints at the continued headwinds of unprecedented business closures that began in March as the pandemic hit. And as PYMNTS reported in early April, a large percentage of Americans have been living paycheck to paycheck. Although our data was collected just before stimulus payments started to make the rounds, beefing up savings a bit, that cushion is being built up from an extremely low level.

The data show that six of 10 consumers (with more than 2,100 surveyed) have been living paycheck to paycheck and less than half have less than $2,500 in savings. Back in April, at least 55 percent of those paycheck-to-paycheck consumers said they had access to enough cash to last them two weeks before having to tap into savings. That would imply that they started to tap into reserves just as stimulus hit, which in turn means that even the buffer given by added unemployment benefits and $1,200 stimulus checks would have been whittled away in the past few weeks.

“The economy is still being very much buffered by stimulus,” Michelle Meyer, head of U.S. economics at Bank of America told The New York Times. “When that starts to wane, we will learn a lot more about the underlying health of the recovery.”

Friday’s excitement — that there is light at the end of the tunnel — may thus be poised to dim, at least a bit.