The May employment report showed further impact of the COVID-19 shutdown, but there was no question that the surprisingly positive data point to a turning point after weak March and April readings.
There will not be a significant improvement in the employment situation until more businesses reopen, but there should be additional positive signs in the June report as states move further in that direction.
Nonfarm payrolls rose by 2.5 million in May, well above than the 7.7 million decline expected. Downward revisions to April payrolls, to a 20.7 million decline, and to March payrolls, to a 1.4 million decline, take some of the punch out of the May gain, but the increase quickly lifted the spirits of financial markets.
Private payrolls rose by 3.1 million after a decrease of 585,000 in government payrolls is excluded. Analysts had expected private payrolls to fall by 6.5 million.
The largest improvement was in the hard-hit leisure and hospitality sector, which includes hotels and restaurants. That sector recovered 1.2 million jobs in May, after losing 7.5 million jobs in April. The food services sector alone added 1.4 million jobs in May.
Retail trade jobs rose by 368,000 as some states allowed nonessential businesses to resume, while health care added 391,000 jobs as many areas lifted bans on elective procedures and furloughed medical office employees were rehired.
Manufacturing jobs rose by 225,000 and construction jobs rose by 464,000. The goods sector added a total of 669,000 jobs, compared with the 2.4 million jobs regained in the services sector.
Hourly earnings fell by 1.0% after a 4.7% gain in April, putting the year/year rate at 6.7%. The level of earnings remains high due to the large number of lower wage jobs that were removed from the count in April, but partial restaurant reopenings in May allowed some workers on the lower end of the pay scale to reenter the calculation.
In the household survey, the unemployment rate fell to 13.3% from 14.7% in April, well below expectations for an increase to 19.8%.
The BLS said if workers that were temporarily furloughed due to COVID-19 were labeled as unemployed on temporary layoff rather than as simply absent from work, the unadjusted unemployment rate would have been closer to 16.0% rather than the 13.0% reported. BLS said many were counted appropriately, but others were not.
The labour force participation rate rose to 60.8% from 60.2% in April, but remained well below the 62.7% level in March and 63.4% level in February. The number of employed rose sharply, while the number of unemployed declined, as many workers returned to their jobs or found another.
The wider U-6 rate, which represents those underemployed and those working part-time rather than full-time, fell to 21.2% from 22.8% in April.