Unexpectedly, Jobs Begin to Rebound in May

Following weeks during which more than 40 million people filed for unemployment benefits in the wake of the pandemic-related shutdown, employment actually rose in May by more than 2.5 million jobs, as the economies in many states began their phased reopening.

At the same time,  1.9 million people filed new jobless claims last week, still a high number but the lowest since March. (More detail on that later in this story.)

Such sharp changes in direction in employment data are not typical, but these are not normal times. Given the different approaches to the shutdown taken by the states, as well as restrictions that continue to be imposed in some industries or sectors while others are seeing a relaxation, the jobs gain reflects improving activity in those states or industries that are easing rules.

The chart below dramatically displays the job losses over the last three months and the uptick. in May. Total employment fell in April to its 2010 level, just after the Great Recession of 2007-2009, and recovered about one-tenth of the losses in May. Whether this recovery is real and will continue, or it’s the proverbial “dead cat bounce,” will be revealed over the next few months.

Most industries saw job gains. Leading was Hospitality with 1.2 million jobs added in May, which recovers almost half of its April losses. Construction, with 464,000 added jobs, reverses nearly one-fifth of the prior month’s losses in that sector.

Other categories with large gains were Retail Trade, up 368,000; Health Care,  up by 312,000, and Manufacturing,with 225,000 jobs added.

The chart above shows that the bulk of the job losses were in government, where employment contracted by 585,000 — a small number relative to total government employment of more than  21 million jobs. Compared to a year ago, the general economy has lost 12% of its jobs, while government employment has fallen by only 4%.

Within government, the local level accounts for 83% of the government jobs lost. This is because local government units, unlike the federal government, have to work within an annual budget and rely mostly on retail sales and other taxes, which of course depends upon ongoing economic activity. The shutdown of most businesses has reduced state and local revenues and, as such, these entities are forced to cut their operating expenses.

The official May employment report issued by the Bureau of Labor Statistics also showed that the Unemployment Rate fell by 1.4 percentage points to 13.3%. BLS stated, however, that the coronavirus shutdown disrupted some of its data gathering operations, potentially leading to errors, such as counting unemployed people as if they were actually employed. This would result in a lower unemployment figure. The Bureau estimated the undercount in the rate as 3.3 percentage points, leading to a possible unemployment rate of 16.6%, or nearly two points higher than in April.

Hourly Wages fell for the first time since late 2017, down 14 cents or 0.6%, to $25 an hour.

The Labor Participation Rate, i.e. the percentage of the population either employed or unemployed but looking actively for a job, rose to 60.8%, up 0.6%. The improvement was across virtually all age groups and races. For all practical purposes, the only exceptions were persons aged 65 years or older, which is not surprising, since they are the ones most vulnerable to the disease, and  more likely to have stayed at home to avoid contact during the pandemic.

Unemployment Claims Still Rise

While overall jobs did indeed increase in May, the last week of the month also saw 1.88 million people apply for unemployment benefits. Even though this is just under a quarter-million fewer people than the previous week, when 2.13 million filed, the total number who have filed since the pandemic locked down began is up to 42.6 million.

Manufacturing Sector Contracts Sharply

Similar to most other industries, manufacturing faced a sharp drop in activity in April. Orders and shipments each had similar declines for the month, with orders falling by 17.2% to $170 billion, and shipments dropping by 17.7% to $192 billion.

April was the second month of substantial reductions in manufacturing orders and shipments, even though both of them had followed a slowly declining trend for the last couple of years, since the Trump administration instituted foreign trade disputes as a policy.

Foreign Trade Worsens

It is not surprising, given the state of near paralysis throughout most of the world, that U.S. exports and imports fell in April. Exports fell further than imports, dropping 20% for the month to $39 billion. Imports, on the other hand, dropped by $32 billion, or 14% from the prior month.

The larger decline in exports pushed the trade balance further into negative territory. Thus for April, the balance of trade was $49 billion, which is $7 billion worse than in the prior month, although it is virtually the same as the balance a year ago in April 2019.

Mortgage Rates Inches Up

Even though the fixed, 30-year mortgage rate rose minimally last week — up three basis points to 3.18% — rates remain at historical lows, which is encouraging many homeowners to borrow funds to either remodel or purchase a home.

The Mortgage Bankers Association’s latest weekly survey reported further increases in applications for mortgages to purchase a home, which have been rising for several weeks. However, the latest results also reveal that applications for refinancing have fallen for seven consecutive weeks. Its refinance index is at its lowest level since mid-February.

The Association’s survey does not identify consumers’ reasons for refinancing, which could be anything from engaging in remodeling projects to paying off other loans or lowering monthly mortgage payments.

Manuel Gutierrez, Consulting Economist to NKBA

Explanation of NKBA’s Economic Indicators Dashboard

The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.

Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.

Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.

Single-Family Starts.  This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.

Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.

High-End Home Sales. This series are sales of new homes priced at $500,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.

Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.

Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.

Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.

Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers.

We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us at Feedback@nkba.org if you would like to see further detail.