Newsletter Special Report: Lots of Jobs, Lots of Uncertainty

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

U.S. job growth surged last month, underscoring the economy’s capacity for a quick rebound if businesses continue to reopen and consumers regain confidence. A recent coronavirus spike, however, could undermine trends captured in the latest jobs report. Jeff Sparshott, Greg Ip and Eric Morath here to take you through the numbers.

Great on the Surface, Troubling Underneath

First the (very) good news: June’s 4.8 million payroll increase was much more than expected, and nearly double May’s increase, itself revised up a bit. The recovery thus not only continued through June, it accelerated. The unemployment rate, adjusted for misclassification errors, has now retraced half its pandemic-related increase. Now, the troubling news. As temporary unemployment drops, permanent job losses keep rising. A “core” unemployment rate (which subtracts temporary layoffs and adds unemployed who didn’t search for a job recently) jumped to 5.9% in June from 5% in May, according to Indeed economist Jed Kolko. That will likely keep rising as more businesses close for good. The June data are a snapshot of the second week of June, and since then spending and job growth seem to have slowed, possibly due to a rebound in Covid-19 cases. Continuing claims for unemployment insurance have stopped falling. Add fading federal stimulus, and headwinds to the recovery may be stiffening. —Greg Ip

KEY THEMES

Big Time

The overall employment gain of 4.8 million in June was the most in records dating back to 1939. Even with the big increase, total employment in June was down 14.7 million, or 9.6%, from February’s pre-pandemic level.

The two industries that suffered the most job loss due to the coronavirus pandemic and related shutdowns—hospitality and retail—saw the strongest gains in the last two months as the U.S. economic engine restarted. Employment in leisure and hospitality increased by 2.1 million in June, accounting for about 40% of the overall gain last month. Restaurants and bars were the driver, gaining about 1.5 million jobs for the second straight month.

Bars, restaurants, hotels and stores, of course, are particularly vulnerable to renewed layoffs because a recent spike in coronavirus cases in several states is causing governors to halt or roll back reopening plans.

The unemployment rate fell to 11.1%. Before the pandemic, that would have been a post-World War II record. Now, it’s a sign the labor market is slowly healing.

Unemployment fell across racial and gender groups, though the decline was uneven. The jobless rate for white workers fell 2.3 percentage points to 10.1% in June. The unemployment rate for Black workers decreased 1.4 percentage points to 15.4%. The rate for Latino workers fell below that of Black workers, declining 3.1 percentage points to 14.5%.

The Labor Department said the official unemployment rate is still an undercount because some workers were misclassified as employed, but absent from work, when they should have been counted as unemployed, on temporary layoff. Had the error not happened, June’s unemployment rate would have been about 1 percentage point higher than reported. The misclassification has persisted throughout the pandemic and the trend of falling unemployment holds regardless. Bonus: The Labor Department is getting better at this—the degree of misclassification declined considerably in June.

One worrisome sign: The number of permanent job losers rose again. The figure increased by 588,000 to 2.9 million in June, suggesting more permanent damage from the pandemic.

Workers on temporary layoff, meanwhile, are steadily getting called back. “However, there are still 10.6 million people with this status, and the longer they remain out of work, the greater the risk that their situation becomes permanent,” said Mike Fratantoni, economist at the Mortgage Bankers Association.

The number of medium and long-term unemployed rose. The longer someone is out of work, the harder it can be to get hired into a new job.

Because the economic landscape is changing rapidly, the jobs report is somewhat backward looking. Jobless claims data, which is two weeks fresher, shows that the trend in layoffs is improving at a much slower rate than in April and May—the figure hardly budged last week. The number of people receiving unemployment benefits, meanwhile, has leveled off. “This means that while hiring is occurring in areas such as leisure and hospitality, many are being laid off in support industries and in state and local governments,” said Robert Frick, economist at Navy Federal Credit Union.

TWEET OF THE DAY

[wsj-responsive-sandbox id = "0" ]

WHAT ECONOMISTS ARE SAYING

“While the labor market recovery has surpassed expectations, it has only recouped three out of every ten jobs lost. Policymakers should not read the back-to-back record payroll reports as ‘mission accomplished.’ ” —Gregory Daco, Oxford Economics

“More than 15 million people remain out of work, and with the pace of reopening slowing and stimulus programs expiring, it is likely that the pace of labor market improvement will taper off in the coming months, as other indicators of activity have already begun to do.”  —Eric Winograd, AllianceBernstein

“The coronavirus crisis moves so quickly that these numbers are already out of date, but the signals we can read suggest the near term future is not bright.” —Nick Bunker, Indeed

“Today’s jobs report…is a look in the rearview mirror. With surging Covid-19 cases hitting new highs in the past week, rough waters are surely ahead for the economy in the coming months as a second wave could again shutter millions of American small businesses and put a freeze on hiring.” —Andrew Chamberlain, Glassdoor

SIGN UP FOR OUR CALENDAR

Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.