Layoffs by companies are affecting Americans across the country. Victor Ho lost his internship with a leading makeup brand in New York, just two months after getting it. (May 7)
A weekslong paradox in the labor market is likely to be thrown into stark relief Thursday with dueling reports released at precisely the same moment: The economy is recouping millions of lost jobs even as hundreds of thousands of Americans continue to be laid off amid the coronavirus pandemic.
The Labor Department’s employment survey is expected to show that a record 3.1 million jobs were added in June as the unemployment rate fell to 12.3% from 13.3%, according to the median estimate of economists surveyed by Bloomberg.
At the same time, a separate Labor report is projected to reveal that another 1.3 million Americans filed initial claims for unemployment benefits – a rough measure of layoffs – last week. Both reports are set to be published at 8:30 a.m. EDT after the jobs survey news was moved up due to the July 4 holiday.
While the data seems contradictory, it simply reflects the reality that, more than three months into the crisis, layoffs have persisted but are being outpaced by the number of idled workers rehired as states allow businesses shuttered by the outbreak to reopen.
Bottom line: The rebound from the coronavirus-induced recession – the steepest but shortest on record – is likely to be a drawn-out saga.
“The labor market recovery likely gathered pace in June amid a firm initial bounce in economic activity,” economist Lydia Boussour of Oxford Economics wrote in a research note. Yet, she added, “Sadly the expected payroll gains will only represent another small step on the road to recovery as seven out of 10 laid-off workers would still be unemployed in June.”
The 3.1 million net job gains forecast – which reflects both layoffs and new hiring last month – would follow the 2.5 million jobs added in May. Yet that surge would amount to a small portion of the 22 million positions shed in March and April as states closed down nonessential businesses and consumers stayed home to avoid contagion.
The lion’s share of June’s job gains is likely to be in industries hit hardest by the shutdowns, including restaurants, bars, stores, and to a lesser extent, hotels. Construction, manufacturing and health care likely also saw strong advances as many medical practices reopened, Boussour says.
The unemployment rate, which fell to 13.3% in May from 14.7% the prior month, has been clouded by Labor’s caveat that many workers classified as employed but absent from work due to the crisis should have been considered temporarily laid off. That would have put unemployment at 16.3% last month. Labor has been working to correct that survey glitch, Oxford says, a change that could mean a smaller-than-expected drop in the jobless rate in June.
The jobs report is not expected to reflect the recent surge in coronavirus cases in the South and West, which has 17 states pausing or reversing their reopening plans, Capital Economics wrote in a note to clients. That backtrack, however, could dampen job gains in July.
Thursday’s jobless claims data, meanwhile, will figure into the July employment report, but likely was also gathered too early to account for any layoffs resulting from state rollbacks.
A claims total of 1.3 million would push total first-time claims since the crisis began in mid-March to a staggering 48.4 million. It also would mark the 13th straight weekly drop in initial claims since they peaked at 6.9 million at the end of March. But the declines have slowed recently, with claims hovering at about 1.5 million in the most recent three-week period.
Continuing claims, which represent all Americans still receiving benefits with a one-week lag, are expected to total 18.9 million, down from 19.5 million the prior week. That number has become more significant because it reflects all those still unemployed and accounts for people who have returned to work. That figure also has trended down as states reopen their economies, though not as dramatically as it did in mid-May when many states began reopening.
There are several reasons unemployment claims have remained high even as the economy has started to recover lost jobs.
Under expanded eligibility criteria during the crisis, the claims represent workers on furlough and with reduced hours, as well as those permanently laid off.
Also, even while restaurants and stores are bringing back workers, layoffs have spread to other sectors such as administration, education and professional services.
And some struggling businesses are now permanently laying off workers even as those sidelined temporarily are being called back.
Overall, only about half the jobs shed during the crisis are expected to be recouped by year’s end, leaving unemployment elevated near 10%, according to Moody’s Analytics.
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