This morning’s Jobs Report came as a positive surprise, with a gain of 2.5 million jobs, compared to the consensus expectation of 7.45 million decline. This gain tells us that the pandemic economy has finally hit a bottom and is now beginning to bounce back, but even record breaking growth does not tell us that the economy will emerge quickly or unscathed.
The most important distinction in the economy today is between temporary and permanent job loss. There are millions of jobs right now that are on temporary hold, with the worker laid off with the understanding that when the economy opens back up they will come back to work. This type of unemployment has declined this month as states and cities have begun reopening.
Another factor is that businesses that normally employee 50 million or more workers have been receiving Paycheck Protection Program funds that incentivize rehiring. While the program is imperfect, it is channeling hundreds of billions into payrolls. With upwards of 50 million workers potentially affected, even a 10% increase would lift payrolls by 5 million and could easy swamp underlying job loss elsewhere.
While temporary layoffs returning to work and PPP rehiring are both good news for the workers, it is important to not lose sight of the underlying damage being done to the economy. Businesses are reopening, but for many it is already too late. Census data shows that nearly three months into the crisis, many businesses are out of cash or very low, and revenues remain far below normal. This is causing tremendous strain and a wave of business failures, a fact we should not let the attention grabbing payroll numbers distract us from.
Business failures are only measured by the government with a major lag, meaning we won’t be able to really see this damage in the data until towards the end of the year. However, there is some sign of permanent damage in the jobs report itself. The number of workers who are unemployed due to permanent job loss rose 255,000 this month, bringing the total to a million above where it was at the beginning of the year. A million jobs permanently lost is already a significant amount, and this number continues to climb.
Overall, when we are this far from normal, payrolls heading in the right direction is far from mission accomplished. A better than expected jobs report for May is some good news, but right now we need more than some good news, we need a lot of it.
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