- The June U.S. jobs report revealed that the labor market recovery accelerated in June, with 4.8 million nonfarm payrolls jobs added, and the unemployment rate declined for the second consecutive month to 11.2% in June from 13.7% in May.
- While the labor market recovery surpassed consensus expectations, it has so far only recouped a third of jobs lost. It is too early to celebrate given the improvement in unemployment insurance claims continues to fall short of the rebound in nonfarm payrolls.
- The back-to-back record payroll gains increase the risk of lawmakers going soft on the next stimulus bill even while the unemployment gap remains very large. But that effect may be offset by the rising COVID-19 infections in many states during the second half of June (after the BLS survey week that ran through June 12).
- With the health crisis showing little sign of abating, the looming July 31 income cliff for 30 million unemployment benefit claimants should motivate policymakers to press firmly on the fiscal accelerator to ensure a strong recovery.
As economic activity continued to gradually reopen across the country nonfarm payrolls rose by 4.8 million in June, beating the median consensus forecast of 3 million. Combined with upwardly revised monthly job gains of 2.7 million in May (was 2.5 million), the economy has recovered about 34% of the deep hole made during March and April. Almost 15 million jobs remain to be recovered. The unemployment rate is down to 11.2% now, and the broader U-6 measure of unemployment also declined--to 18% in June from 21.2% in May. (The downward bias in reporting unemployment rate due to misclassification was reduced by the Bureau of Labor Statistics [BLS] from about 3 percentage points to now 1 percentage point.)
Job gains were widespread across industries, with particularly large gains in leisure and hospitality (2.1 million), retail trade (740,000), education and health services (568,000), and manufacturing (356,000). Manufacturing has recovered less than half of the 1.4 million jobs lost since February. Finer industry classification reveals that restaurant and bar reopenings alone added 1.5 million jobs, accounting for almost a third of the total gains.
Mining and logging continued to shed jobs, reflecting the below-break-even oil price outlook in the energy sector, and state governments continued to lose jobs, down 25,000 in June--both important exceptions to the overall trend. State governments have consistently lost jobs during the pandemic, an important observation for Congress as it contemplates the next round of fiscal relief, in which aid to states should be an essential component. If states--which are mandated to have a balanced budget--do not get federal aid of hundreds of billions to offset lost revenues and increased expenditure during their fight against the pandemic, the recovery of the labor market is going to be hit directly, and the negative impact will spill over into other private sectors.
Millions of furloughed workers were called back, and people on temporary layoff fell 4.8 million in June to 10.6 million. This is a space to watch given temporary layoffs as a share of unemployed remains relatively high at 59.5% (down from 78.3% in April and compared with 13.8% in February). To the extent workers exit temporary layoffs to return to work, the expansion should experience a faster liftoff. On the flip side, the number of people on permanent layoff rose by 588,000, to 2.9 million. The share of workers on permanent layoff has been creeping higher, hitting 16.2% and up from 10.9% in May.
Will the economy sustain this pace of job recovery? We do not think so. That's because the economy is not out of the woods yet. More normalization should be expected, but it will likely face bouts of hiccups based on recent state-level spikes in the virus. Across the U.S., 52,609 new infections were reported on July 1--the largest single day total since the start of the pandemic. Openings have been partially rolled back ahead of July 4 weekend. Mobility data is rolling over on some key southern states that have seen a surge. Momentum is slowing in people-facing service sector in these states.
The recent rise in infections is likely to set back the improvement, even without a state-mandated complete lockdown. The unemployment claims report--which provides a more timely labor market picture--showed that initial claims for the week ending June 27 were still high at 1.45 million, and the rapid decline through May and early June has started to level off at this high level. Multiple explanations have been floated: it could be a backlog problem as the media reports, it could also reflect new jobs lost from businesses not able to continue holding on, or perhaps the dynamic from the expiring eight-week employment guarantees associated with the bulk of Payment Protection Program (PPP) loans is kicking in.
Fear of the virus will keep consumers at bay in several states in the coming weeks, likely taking further wind from the related sector sales. The uncertainty level remains high absent effective virus control, and the large unemployment gap remains. Along with the continuing shedding of state workers, the recovery will likely require another robust fiscal package focused on unemployment insurance extension and state relief.
|Nontraditional Data Comparison (February - Pre-COVID-19 and June - Post-COVID-19)|
|Hotel and entertainment industry|
|Period||Year on year (%)||Period||Year on year (%)|
|Hotel occupancy||Week of June 14-20||(41.8)||Week of Feb. 22-29||(1.7)|
|Hotel average daily rate||Week of June 14-20||(31.7)||Week of Feb. 22-29||1.6|
|Hotel revenue per room||Week of June 14-20||(60.3)||Week of Feb. 22-29||(0.2)|
|Box Office Mojo||Week of June 19-25||(99.8)||Week of Feb. 21-27||17.5|
|Open table||Week of June 29||(62.2)||Week of Feb. 28||3|
|Retail online transactions--revenue||Week ending June 30||91||Week ending April 3||23|
|Retail online transactions--orders||Week ending June 30||104||Week ending April 3||39|
|SBA weekly lending reports||Week of June 21-27||(11.70)||Week of Feb. 22-28||(11.7)|
|Google community mobility reports (retail and recreation)||Week ending June 27||(15)||Week ending Feb. 28||6.86|
|Google community mobility reports (grocery and pharmacy)||Week ending June 27||(1)||Week ending Feb. 28||2.86|
|Google community mobility reports (parks)||Week ending June 27||57||Week ending Feb. 28||12.71|
|Period||Year on Year||Period||Year on year (%)|
|Coal production||Week ending June 20||-32.3%||Week ending Feb. 22||(0.99)|
|Crude production||Week ending June 28||-9.8%||Week ending Feb. 21||7.4|
|Rotary rig count, Baker Hughes, oil||Week ending June 27||-76.0%||Week ending Feb. 15||(21.0)|
|Energy consumption||Week ending June 21||-7%||Week ending Feb. 15||(21)|
|Gasoline prices||Week ending June 22||-22.3%||Week ending Feb. 17||4.8|
|Raw steel production||Week ending June 27||-33.4%||Week ending Feb. 29||0.31|
|Business and consumer sentiment|
|Philadelphia Fed General Business Conditions Index||Survey was conducted the week of June 8-15||27.5||Survey resuts data received through Feb. 20||36.7|
|Empire State General Business Conditions Index||Survey was conducted the week of June 2-9||-0.2||Survey was conducted until Feb. 15||12.9|
|Rasmussen Consumer Index||Survey was done for June||109.8||Survey was done for February||143.9|
|Labor market data|
|Period||Number of claims (mil.)||Period||Number of claims (mil.)|
|Intial claims||Week ending June 27||1.427||Week ending Feb. 22||0.220|
|Note: Google Community Trends data is the % change from Jan. 3 to Feb. 6 baseline (seven-day moving average). Source: U.S. employment and Training Administration, Energy Information Administration, American Iron and Steel Institute, Open Table App, Rasmussen reports, STR, Baker-Hughes rig count, Box Office Mojo and ccinsight.|
|Review of economic indicators released in the past two weeks (June 22, 2020 - July 2, 2020)|
|Latest period||Jun-20||May-20||Apr-20||Level year ago||% year-over-year|
|Jobless claims (four-week moving average, '000s)||27-Jun-20||1,504||2,288||5,040||221|
|Unemployment rate (%)||June||11.1||13.3||14.7||3.7|
|Nonfarm payrolls (change in '000s)||June||4,800||2,699||(20,787)||182|
|Private nonfarm payrolls (change in '000s)||June||4,767||3,232||(19,835)||180|
|Average hourly earnings, all employees (% change)||June||(1.2)||(1.0)||4.7||5.0|
|ADP employment (change in '000s)||June||2,369||3,065||(19,409)||165|
|Participation rate (%)||June||61.5||60.8||60.2||63.0|
|Consumer spending and confidence|
|Consumer Confidence Index (Conference Board)||June||98.1||85.9||85.7||124.3|
|Personal income (m/m, % change)||May||(4.2)||10.8||7.0|
|Personal disposable income (m/m, % change)||May||(4.9)||13.1||8.8|
|Consumer spending (m/m, % change)||May||8.2||(12.6)||-9.3|
|Personal savings rate (%)||May||23.2||32.2||7.8|
|Consumer Sentiment Index (University of Michigan)||June||78.1||72.3||71.8||98.2|
|Business activity and sentiment|
|Durable goods order (m/m, % change)||May||15.8||(18.1)||(17.9)|
|ISM Manufacturing Index (Level)||June||52.6||43.1||41.5||51.6|
|Housing and construction|
|New home sales ('000s)||May||676||580||600|
|Pending home sales (%, m/m)||May||44.3||(21.8)||(5.1)|
|Construction spending (%, m/m)||May||(2.1)||(3.5)||0.3|
|Trade balance of goods and services ($ bil.)||May||(54.6)||(49.8)||(51.3)|
|Exports goods and services ($ bil.)||May||144.5||151.1||212.9|
|Imports goods and services ($ bil.)||May||199.1||200.9||264.1|
|PCE Price Index (m/m % change)||May||0.1||(0.5)||0.5|
|Core PCE Price Index (m/m % change)||May||0.1||(0.4)||1.0|
|Source: US Bureau of Labor Statistics, US Bureau of Economic Analysis, US Census Bureau, Institute for Supply Management, ADP Research Institute|
|Economic Release Calendar|
|8-Jul||Consumer credit ($ bil.)||May||(18)||(68.8)|
|9-Jul||Initial claims, week of 7/4/2020 ('000s)||Initial||1,200||N/A|
|Wholesale sales (%)||May||4.5||(16.9)|
|PPI (excluding food and energy) (%)||Jun||0.1||(0.1)|
|13-Jul||Treasury budget (bil. $)||Jun||(700)||(398.8)|
|CPI (excluding food and energy) (%)||Jun||0.1||(0.1)|
|15-Jul||Empire State Index||Jul||5.5||-0.2|
|Export Price Index (%)||Jun||0.8||0.5|
|Import Price Index (%)||Jun||0.7||1.0|
|Industrial production (%)||Jun||3.4||1.4|
|Capacity utilization (%)||Jun||67.0||64.8|
|16-Jul||Retail sales (%)||Jun||4.0||17.7|
|Retail sales (excluding auto) (%)||Jun||3.5||12.4|
|Philadelphia Fed Index||Jul||20.0||27.5|
|Business inventories (%)||May||(1.5)||(1.3)|
|17-Jul||Housing starts (mil.)||Jun||1.148||0.974|
|University of Michigan Consumer Sentiment (prelim)||Jul||80.0||78.1|
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
|U.S. Chief Economist:||Beth Ann Bovino, New York (1) 212-438-1652;|
|U.S. Senior Economist:||Satyam Panday, New York + 1 (212) 438 6009;|
|Research Contributor:||Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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