Despite the U.S. still in the grips of a major health pandemic and social unrest, President Trump took to a White House podium on Friday and said the economy right now is like a rocket ship...just ready to soar into year end and into 2021.
But is it really?
You almost can’t fault the president for foaming at the mouth after a May employment report that shocked everyone on Wall Street. After months of sinking approval numbers for his handling of the COVID-19 pandemic, a tanking U.S. economy, and a lack of compassion in the wake of the George Floyd murder this was a president no doubt in search of something positive to hang a hat on.
The U.S. Labor Department’s jobs report Friday morning showed that the beleaguered economy added 2.5 million jobs last month. Consensus forecasts had called for another 8 million payrolls to be slashed, with some estimates as high as 10 million. Meanwhile, the unemployment rate rose to 13.3%, well below expectations of a surge to 19.5%.
According to the Bureau of Labor Statistics, “total non-farm payroll employment increased by 2.5 million in May, reflecting a limited resumption of economic activity that had been curtailed due to the coronavirus pandemic and efforts to contain it.” Job gains were the strongest across the leisure, hospitality, retail and manufacturing sectors.
The Dow Jones Industrial Average — already smack in the middle of a melt-up prior to the jobs report — exploded more than 880 points.
But indeed there was a soft underbelly to the employment report. How about at 16.8% in May, the black unemployment rate reaching a decade high of 16.8%? Or the wider measure of unemployment known as ‘U-6’ hovering at almost 22%? These are elements not captured in a stock market rally fixated on beats versus estimates instead of the economic realities on the ground.
Needless to say, experts across the spectrum suggest tempered enthusiasm on Trump’s rocket ship economy. One month hardly makes a trend, especially for an economy reeling with numerous deep-seeded external issues. Here’s what several pros said on Yahoo Finance’s The First Trade moments after the jobs report.
Matthew Luzzetti, Chief U.S. economist, Deutsche Bank
“At this point, it’s a little uncertain whether it’s bringing forward some of the benefits we may see in June and July. We still think the other data points we see are showing an economy that remains at kind of depressed levels. But there is some optimism that comes out of this and there is some optimism that perhaps there are paths the economy may not be as weak going forward in the next few months. It’s still incredibly uncertain.”
Luzzetti thinks the unemployment rate will end the year in the range of 10% to 11%.
Kristina Hooper, Global chief strategist, Invesco
“Well, after I picked my jaw up off the floor, I wondered if there could be some mistake. But, of course, it appears to be the real deal. And I can only assume that a combination of factors were in play. They include PPP loans working, and that certainly is part of it, but also the re-openings have stimulated growth and that’s exciting.
We won’t know until we see the June jobs report [whether this could be a false sense of security]. We could be getting a false sense of security, but we are in the midst of re-opening. So it would make sense that jobs are being created. We are also seeing the effects of PPP. It is doing what it was intended to do in terms of at least keeping some people on the payroll.”
James McDonald, CEO, Hercules Investments
“I have to be honest, I am skeptical of the numbers. It’s difficult to get a handle on the true employment situation. I have been through three major cities in the past four days, Miami, Los Angeles and Washington, DC. If you drive through any city, businesses have been shut down at the small- and medium-sized business level. Large corporations are having people work from home. There are layoffs. It’s very, very dubious. While I am not saying the jobs report is inaccurate, I am saying it doesn’t give us a true picture of what recovery looks like.”
Don Beyer, U.S. Representative of Virginia (D) and Vice chair of Joint Economic Committee
“I think it [the jobs report] validates the stimulus plan that we already put in place. That the PPP, putting $700 billion in the market was clearly part of this rehiring, of bringing people back. But if you go deeper into the jobs report, you see that the local governments lost almost 487,000 jobs in the month of May. And that state governments lost 84,000. They have to balance their budgets. We have almost $1 trillion in the HEROES Act to shore up the state and local governments. We don’t think these numbers will get worse. And I think it’s important to differentiate between the short-term recoveries at like restaurants and hotels, and the long-term structural unemployment that’s not going right away just because the economy begins to open up.”
Yahoo Finance’s Emily McCormick contributed to this story.