by Calculated Risk on 6/05/2020 10:27:00 AM

The May employment report was surprising. Every key indicator - ISM surveys, ADP employment report, unemployment claims and more - suggested further job losses in May. Instead the BLS reported job gains of 2.5 million (about 10 million better than consensus forecasts), and the unemployment rate decreased to 13.3%.

The reference week in May (includes the 12th) was too soon to be impacted by most areas "reopening".  One possibility is that many companies brought back employees to qualify for the PPP (Payroll Protection Plan).

 Earlier: May Employment Report: 2,500,000 Jobs Added, 13.3% Unemployment Rate

In April, the year-over-year employment change was minus 17.7 million jobs.

One of the keys to follow will be the number of workers on temporary layoff.   This increased from 801 thousand in February, to 1.848 million in March, and to 18.063 million in April. This decreased by 2.7 million in May to 15.343 million. It could be that companies let too many workers go in April and brought some back - or this might be related to PPP adjustments.

Prime (25 to 54 Years Old) Participation

Click on graph for larger image.

Since the overall participation rate has declined due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

The prime working age will be key in the eventual recovery.

The 25 to 54 participation rate increased in May to 80.7%, and the 25 to 54 employment population ratio increased to 71.4%.

Part Time for Economic Reasons

From the BLS report:

"The number of persons employed part time for economic reasons, at 10.6 million, changed little in May, but is up by 6.3 million since February. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs. This group includes persons who usually work full time and persons who usually work part time."

The number of persons working part time for economic reasons decreased in May to 10.633 million from 10.887 million in April.

These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 21.2% in May. This is down slightly from the record high last month for this measure (since 1994). The previous peak was 17.2% during the Great Recession.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.164 million workers who have been unemployed for more than 26 weeks and still want a job. This will increase sharply in 4 or 5 months, and will be a key measure to follow during the eventual recovery.

Summary:

The headline monthly jobs number was surprising, and well above expectations.  However, the previous two months were revised down significantly.  The headline unemployment rate decreased to 13.3% (probably closer to 16% according to the BLS).

Since the reference week included the 12th of May, this was too soon to be impacted by "reopenings" in most areas. That will be more of a June story. Instead this increase in employment was likely due to companies rehiring because they let too many people go in April, and because some companies needed to rehire to qualify for PPP forgiveness.

As a reminder, the course of the economy will be determined by the course of the pandemic.

by Calculated Risk on 6/05/2020 08:47:00 AM

From the BLS:

Total nonfarm payroll employment rose by 2.5 million in May, and the unemployment rate declined to 13.3 percent, the U.S. Bureau of Labor Statistics reported today. 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. In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade. By contrast, employment in government continued to decline sharply.
...
The change in total nonfarm payroll employment for March was revised down by 492,000, from -881,000 to -1.4 million, and the change for April was revised down by 150,000, from -20.5 million to -20.7 million. With these revisions, employment in March and April combined was 642,000 lower than previously reported.
emphasis added

Click on graph for larger image.

The first graph shows the year-over-year change in total non-farm employment since 1968.

In May, the year-over-year change was -17.665 million jobs.

Total payrolls increased by 2.5 million in May.

Payrolls for March and April were revised down 642 thousand combined.

The second graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession is by far the worst recession since WWII in percentage terms, and the worst in terms of the unemployment rate.

The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate increased to 60.8% in May. This is the percentage of the working age population in the labor force.

The Employment-Population ratio increased to 52.8% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the unemployment rate.

The unemployment rate decreased in May to 13.3%.

This was well above consensus expectations of 8,250,000 jobs lost, however March and April were revised down by 642,000 combined.

This was a surprising employment report since all other data pointed to more job losses in May.   I'll have much more later …

by Calculated Risk on 6/05/2020 07:00:00 AM

Note: Both Black Knight and the MBA (Mortgage Bankers Association) are putting out weekly estimates of mortgages in forbearance.

From Black Knight: Black Knight: Number of Homeowners in COVID-19-Related Forbearance Plans Falls for First Time Since Crisis Began; 8.9% of All Mortgages Now in Forbearance

• According to the McDash Flash Forbearance Tracker, as of June 2, 2020, 4.73 million homeowners – or 8.9% of all mortgages – are in COVID-19 mortgage forbearance plans

• Active forbearance volumes decreased by a net 34,000 over the past week, marking the first weekly decline since the crisis began

• According to the McDash Flash Payment Tracker, as of May 26, a significantly lower share of homeowners in forbearance had remitted May payments (22%) than did in April (46%), pointing to another likely rise in the delinquency rate for May

“After rising sharply in April and then leveling off toward the end of May, the number of American homeowners in forbearance plans has now decreased for the first time since the crisis began,” said Jabbour. “There were a net 34,000 fewer homeowners in forbearance as of June 2. The decline was actually greater among government-backed mortgages, which saw 43,000 fewer total forbearance plans than last week, but this was partially offset by an increase of 9,000 new plans on mortgages held in bank portfolios and private-label securities.”

The McDash Flash Forbearance tracker shows that the 4.73 million loans in forbearance represent 8.9% of all active mortgages and account for a little over $1 trillion in unpaid principal. An estimated 7.1% of all GSE-backed loans and 12.3% of FHA/VA mortgages are now in forbearance.
...
“While this decline is welcome news,” Jabbour continued, “there are still concerning signs in the data. According to Black Knight’s McDash Flash Payment Tracker, far fewer homeowners in forbearance remitted May payments than did in April. If that trend holds true through the end of the month, the market should be prepared for another likely rise in the delinquency rate for May. Also, expanded unemployment benefits are scheduled to end on July 31. It remains to be seen how that will impact both forbearance requests and overall mortgage delinquencies.”
emphasis added

CR Note: The delinquency rate in April increased sharply to 6.45%, but it would have been much higher if so many borrowers in forbearance hadn't made their mortgage payments (unpaid loans in forbearance are counted as delinquent in the survey).  It appears there will be another significant increase in the delinquency rate in May.

by Calculated Risk on 6/04/2020 09:11:00 PM

My May Employment Preview.

Goldman's May Payrolls preview.

Friday:
• At 8:30 AM ET, 8:30 AM: Employment Report for May.   The consensus is for 8,250,000 jobs lost, and for the unemployment rate to increase to 19.7%.

by Calculated Risk on 6/04/2020 06:23:00 PM

A few brief excerpts from a note by Goldman Sachs economist Spencer Hill, et. al.:

We estimate nonfarm payrolls declined by 7.25 million in May … Downward revisions to April payrolls are also likely, in our view.
...
We estimate the unemployment rate rose from 14.7% to 21.5%.
…
In interpreting tomorrow’s report, we will again pay special attention to the number and share of workers on furlough or temporary layoff.
emphasis added

by Calculated Risk on 6/04/2020 05:31:00 PM

The US is now conducting over 400,000 tests per day, and that might be enough to allow test-and-trace in some areas. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US might need to double the number of tests per day again.

According to Dr. Jha of Harvard's Global Health Institute, the US might need more than 900,000 tests per day .

There were 465,579 test results reported over the last 24 hours.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 4.5% (red line).

For the status of contact tracing by state, check out testandtrace.com.

by Calculated Risk on 6/04/2020 05:00:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 30 May

STR data ending with 30 May showed another small rise from previous weeks in U.S. hotel performance. Year-over-year declines remained significant although not as severe as the levels recorded previously.

24-30 May 2020 (percentage change from comparable week in 2019):

• Occupancy: 36.6% (-43.2%)
• Average daily rate (ADR): US$82.94 (-33.3%)
• Revenue per available room (RevPAR): US$30.34 (-62.1%)

“A seventh consecutive week of higher demand and occupancy was highlighted by three submarkets actually showing positive year-over-year occupancy comparisons for the weekend,” said Jan Freitag, STR’s senior VP of lodging insights. “Two of those areas, Titusville/Cocoa Beach and Melbourne/Palm Bay, likely received a boosted from the SpaceX launch activities on Saturday. The third submarket, Corpus Christi, further supports previous analysis that there is demand ready to return, but for now, it is more visible from leisure sources and in destinations that are set up well for drive-to business.

“Because the situation intensified more toward the end of the week, and because there has not been a great deal of demand in downtown areas because of the pandemic, there wasn’t a noticeable impact from protests and the unrest occurring in major cities. That is something to monitor in our next dataset and perhaps beyond depending on how the situation plays out.”
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2020, dash light blue is 2019, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

During 2009 (black line), many hotels were struggling. At this point in the year, the 4-week average in 2009 was 56%. Now it is just at 33.6%! (The median is 65%).

Note: Y-axis doesn't start at zero to better show the seasonal change.

by Calculated Risk on 6/04/2020 11:21:00 AM

On Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus is for a decrease of 8,250,000 non-farm payroll jobs, and for the unemployment rate to increase to 19.7%.

Last month, the BLS reported 20,500,000 jobs lost in April and the unemployment rate increased to 14.7%.

The job losses in April were the worst on record (series started in 1939), and the losses in March were the ninth worst on record. The previous worst jobs report was after WWII.

The job losses in May will be the 2nd worst on record, but there is a wide range of estimates.

Worst Monthly Job Losses Since 1939
Rank	Date	Jobs Lost (000s)
1	Apr-2020	-20,500
2	Sep-1945	-1,959
3	Oct-1949	-838
4	Mar-2009	-800
5	Jan-2009	-784
6	Feb-2009	-743
7	Nov-2008	-727
8	Dec-2008	-706
9	Mar-2020	-701
10	Apr-2009	-695

Merrill Lynch economists wrote: "We expect -8mn in May nonfarm payrolls and the unemployment rate to jump to 19% from 14.7%. "

However, the ADP report only showed 2.76 million private sector jobs lost in May.

The usual indicators are somewhat useless again this month.  They are signaling significant jobs losses, but we've never seen anything remotely close to the job losses that happened in April and May.

For example, the ISM manufacturing employment index increased in May to 32.1% from 27.5% in April (both readings are very low). And the ISM non-manufacturing employment index increased in May to 31.8% from a record low 31.0% in April.  Combined, these surveys suggests significant job losses, but fewer than in April.

• Conclusion: The number of jobs lost in May will be huge, and this will be the 2nd worst jobs report on record.   But the number of jobs lost could be anywhere from a few million to 8 or 9 million.  My guess is the number of jobs lost will be lower than the consensus.

by Calculated Risk on 6/04/2020 09:18:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $49.4 billion in April, up $7.1 billion from $42.3 billion in March, revised.

April exports were $151.3 billion, $38.9 billion less than March exports. April imports were $200.7 billion, $31.8 billion less than March imports.
emphasis added

Click on graph for larger image.

Both exports and imports decreased in April.

Exports are down 28% compared to April 2019; imports are down 22% compared to April 2019.

Both imports and exports have decreased sharply due to COVID-19.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Note that the U.S. exported a slight net positive petroleum products in recent months.

Oil imports averaged $34.72 per barrel in April, down from $47.09 in March, and down from $63.47 in April 2019.

The trade deficit with China decreased to $22.5 billion in April, from $26.8 billion in April 2019.

by Calculated Risk on 6/04/2020 08:39:00 AM

The DOL reported:

In the week ending May 30, the advance figure for seasonally adjusted initial claims was 1,877,000, a decrease of 249,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 2,123,000 to 2,126,000. The 4-week moving average was 2,284,000, a decrease of 324,750 from the previous week's revised average. The previous week's average was revised up by 750 from 2,608,000 to 2,608,750.
emphasis added

The previous week was revised up.

This does not include the 623,073 initial claims for Pandemic Unemployment Assistance (PUA).

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 2,284,000.

This was close to the consensus forecast of 1.9 million initial claims.

The second graph shows seasonally adjust continued claims since 1967 (lags initial by one week while increasing sharply).

At the worst of the Great Recession, continued claims peaked at 6.635 million, but then steadily declined.

Continued claims have already increased to 21,487,000 (SA) from 20,838,000 (SA) last week and will likely stay at a high level until the crisis abates.

Note: There are an additional 10,740,918 receiving Pandemic Unemployment Assistance (PUA). This is a special program for business owners, self-employed, independent contractors or gig workers not receiving other unemployment insurance.