The Jobs Report was great… Now we just need more of them.

Economic forecasters had one of their biggest whiffs when they predicted 8.5 million job losses in the June unemployment report and a rise in unemployment to 19.8%1. Instead, the Bureau of Labor Statistics reported an increase of 2.5 million jobs, and a fall in the unemployment rate to 13.3%. The forecast was off by an astonishing 11 million jobs.

The most likely reason for this forecasting error was the unexpectedly fast impact of the Paycheck Protection Program passed by Congress. Essentially, the program provided small business loans that would not need to be paid back if they were mostly spent on rehiring and retaining employees. Economists expected to see a major employment impact from this program beginning in June; instead, the big numbers started a month early. About two thirds of the job gains came from restaurants and retail stores, which were key beneficiaries of the Paycheck Protection Program2.

But what does one fantastic month mean for the path of economic recovery as a whole? First, the employment surge means that concerns about permanent job losses should be lessened slightly. Our hope has always been for a v-shaped recovery, in which jobs revive as fast as they disappeared, and this report provides evidence that a piece of the recovery looks to be v-shaped. Fast recovery is particularly important because the longer the economic slump, the more likely it is that temporary job losses will become permanent.

Markets certainly welcomed the strong employment report, as the S&P rose about 3% that Friday, and the 10- year bond market yield climbed to over 0.9%. The rally continued on the ensuing Monday, bringing the S&P 500 into positive territory for 2020 before a pullback later in the week.

But while trends are good, the current levels of unemployment are still very high. As the chart below shows, at this point we’ve only recovered a small fraction of the jobs lost in the preceding months.

On the surface, we expect strong job numbers going forward for the next month or two, from both the ongoing impact of the Paycheck Protection Program and from businesses reopening as states continue to relax coronavirus restrictions. However, with new coronavirus cases still in excess of 10,000 per day, the economy is unlikely to fully recover until caseloads fall, treatments improve, or a vaccine is found. In the interim, we will likely need an additional measure of government aid for businesses and employees still hampered by COVID-19, and for states and localities whose budgets have been devastated by revenue shortfalls due to this (hopefully) brief but very intense recession.

¹ https://twitter.com/Neil_Irwin/status/1268882554821672960
² https://www.washingtonpost.com/business/2020/06/05/unemployment-rate-wrong/

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