Somehow, the US jobs market has come back from the brink with employment surging 2.509 million, despite none of the labor demand surveys suggesting this was remotely possible.

The biggest data surprise in history?

US non-farm payrolls have risen 2.509 million in May, versus a consensus estimate of a 7.5 million fall. This was so far away from what anyone was expecting. It is simply astonishing given the slow pace of reopening, and the fact that more than 12 million people filed a new unemployment claim during the survey period.

The ADP payrolls survey had come in stronger than expected, but even that still had a payrolls decline of 2.76 million, so this is one of the biggest economic data shocks in history, if not the biggest.

The details show that private payrolls rose 3.09 million, with a 1.239 million increase in leisure/hospitality, a 368,000 increase in retail, a 464,000 increase in construction, and a 225,000 increase in manufacturing. The only sector to experience a fall was in government (-585,000).

US non-farm payrolls

Macrobond, ING

Unemployment down to 13.3%

The household survey, which is used to calculate the unemployment rate, was even stronger. It reported that those saying they were employed rose by 3.839 million, but there are some oddities in here; given that unemployment fell by only 2.09 million, it appears as though new workers have been magicked up out of nowhere.

The response rate was well down on usual levels, so this could be adding to the sense of confusion, as well as how people self-identify in the range of responses available in the survey. Either way, the unemployment rate has fallen to 13.3% from 14.7%, and the proportion of 16-65 year-olds in work has risen to 52.8%.

Rounding out the numbers, we have average hourly earnings falling 1%, which, again, reflects the distortions when you don’t mix-adjust the data. Millions of relatively low-paid people now earning a wage will automatically drag down the average hourly earnings rate, so this number should be ignored.

Unemployment and employment ratios

Macrobond, ING

The recovery could get bumpier

There will naturally be some doubt lingering about these figures, given that they are telling such a different story to all other data on the labor market, but these are the official ones and, on the face of it, are fantastic. It suggests the American economy can bounce back very vigorously, and we all need to massively revise up our economic projections.

The rebound in hiring should continue, particularly as consumer-orientated retail and hospitality-related industries continue to reopen. Nonetheless, caution is still warranted. Most restaurants and retailers are unlikely to need as many staff as they had before the pandemic hit, given social distancing limiting customer numbers at any given time.

Many businesses may simply take the view that it isn’t economically viable for them to open at this stage and remain closed, particularly in big cities where office blocks will remain shut for some time to come and there isn’t a flow of customers.

Furthermore, given the downturn in global economic activity, many manufacturing and professional service firms may also not need as many staff, as they face up to the new economic environment of weaker corporate profits and higher debt levels. We also have to remember that even after today's great numbers, US employment is still 19.55 million lower than it was in February. We still have a long way to go.