'Whoa': May Jobs Report Much Stronger Than Expected, Unemployment Rate Falls To 13.3%

"Whoa." That seems to be the consensus about the monthly jobs report.

The U.S. unemployment rate contracted 1.4 percentage points in May to 13.3% — far exceeding economist forecasts of 19.8% and outperforming the 1933 peak that many expected to be comparable.

“These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it,” the Bureau of Labor Statistics wrote in its report.

The Breakdown

Nonfarm payrolls expanded by 2.51 million in May compared to an expected contraction of 8 million and the previous month’s contraction of 20.69 million. The labor force participation rate improved by 0.6 percentage points, and the numbers of temporary layoffs declined sharply.

The figures reflect a steep rise in leisure and hospitality jobs (1.2 million), construction (464,000), education and health (424,000), retail (368,000), manufacturing (225,000), professional and business services (127,000), financial activities (33,000) and wholesale trade (21,000).

Government jobs declined 585,000, and employment in information (38,000), mining (20,000), and transportation and warehousing (19,000) also declined.

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Notably, the unemployment rates improved for adult men, adult women, white and Hispanic Americans but remain relatively unchanged for teen, black and Asian Americans. Additionally, the number of permanent job losses increased by 295,000 to 2.3 million.

“Barring a second surge of Covid-19, the overall U.S. economy may have turned a corner, as evidenced by the surprise job gains today, even though it still remains to be seen exactly what the new normal will look like,” said Tony Bedikian, head of global markets at Citizens Bank.

What Economists Are Watching

Prior to the BLS release, economists expected the unemployment situation to worsen significantly in May and slowly improve after as states ease pandemic-related lockdown restrictions.

“The worrisome issue is what is the level we’re going to hit where we’re going to plateau for a while. It shows there’s no easy fix, and it could be more persistent than we’d like to see,” Diane Swonk, chief economist at Grant Thornton, told CNBC before the report.

Oxford Economics predicted a 10% unemployment rate by the end of 2020.

A ‘Ray Of Hope’

Even before, amid dismal economic expectations, the declining number of people filing for unemployment had boosted economist confidence in a slow recovery.

“If there’s any ray of hope in the numbers, the crest of the joblessness wave is very, very near the peak, if not at the peak,” Chris Rupkey, chief financial economist at MUFG Union Bank, told CNBC.

Drew Matus, chief market strategist at MetLife Investment Management, added: “It’s encouraging, but it doesn’t change the fact that we are in for an extended period of much higher unemployment than anyone in this country is used to.”