US employers unexpectedly added 2.5m jobs in May, sending the jobless rate down to 13.3 per cent and easing fears over the damage inflicted by the coronavirus pandemic on the world’s largest economy.
After more than 20m lay-offs during the month of April, some of the hardest-hit industries began hiring workers again, including in leisure and hospitality, construction, education and healthcare, and retailing. Government employment, however, suffered 595,000 job losses, as cash-strapped state and local authorities continued to cut payroll.
As protests against racial injustice spread across the US, the labour department reported that joblessness among African-Americans continued to rise last month, from 16.7 per cent to 16.8 per cent, even as the overall unemployment rate declined from 14.7 per cent to 13.3 per cent.
The recovery of the US labour market came as employers and households began seeing the flow of nearly $3tn in fiscal stimulus measures approved by the White House and Congress in March to protect the economy from an even deeper downturn.
By May, billions of dollars of federal funds were flowing in the form of direct cheques to individuals, unemployment benefits, and loans to small business, and US equity markets were rallying partly on the back of the Federal Reserve’s moves to aggressively ease monetary policy as the crisis unfolded.
The improvement in the labour market will revive hopes that the US may experience a more rapid economic bounceback from the pandemic than feared by many economists and officials. The Fed in particular has warned that a full recovery may not materialise until the end of next year.
However, even with the decline in unemployment to 13.3 per cent, US joblessness remains well above its peak after the 2008-09 financial crisis.
Markets reacted sharply, as the figures sparked a deep sell-off in US government bonds and boosted stocks.
Yields on the benchmark 10-year Treasury surged as much as 13 basis points to 0.96 per cent, its highest level since March 20, before the Federal Reserve threw its full weight behind the market.
US stock futures rallied by contrast, with the S&P 500 poised to open 1.5 per cent higher and large banks such as Bank of America and Citigroup set to rise more than 7 per cent. The advance, if held through the trading day, would give the benchmark S&P 500 its best close since late February, erasing the majority of losses tallied in the coronavirus-induced sell-off.
The S&P 500 has already rallied more than 40 per cent from its March lows, fuelled by a wave of central bank stimulus measures that have effectively backstopped markets. Some improving economic indicators, including Friday’s unemployment figures, have also provided a jolt of optimism for investors.
Donald Trump, the US president who is counting on a strong recovery from the pandemic to bolster his re-election campaign, cheered the data. “Really Big Jobs Report. Great going President Trump (kidding but true)!,” he wrote on Twitter.
Democrats in Congress have been pushing for the White House and congressional Republicans to agree on another package of measures to keep the fiscal spigots open, but serious negotiations have not yet started amid disagreements on the size and details of a new round of support. Democrats want as much as $3tn in additional spending, to aid state and local governments and extend jobless benefits beyond their expiration in July, but Republicans and the White House have been eyeing a smaller target worth around $1tn centred around more tax cuts.
Next week, the Fed’s monetary policymakers are due to hold a regularly scheduled meeting but are not expected to approve any major new policy actions, after pushing interest rates down to zero and moving to boost bond purchases on a large scale since the coronavirus crisis took hold.