US likely suffered ‘heartbreaking’ unemployment in May

Washington, United States | AFP |  Even as the world’s largest economy begins to reopen, the scale of the job losses in May will be devastating, and economists fear it will take many months to recover.

More than 21 million jobs disappeared in March and April as the unemployment rate surged to nearly 15 percent, but the damage continued in May and the government data to be released Friday is expected to show another 8.5 million positions eliminated.

That will push the jobless rate to close to 20 percent or higher, economists expect, a level not seen in nearly a century.

Prepare for “another heartbreaking month of job losses,” chief economist at Grant Thornton Diane Swonk said in an analysis.

Private payrolls data and the Labor Department’s weekly initial jobless claims reports show that with government aid and steps to allow businesses to reopen in most parts of the country, the pace of the layoffs slowed last month and some workers have returned to their jobs.

But for the past week, the nation has been gripped by massive protests over the police killing of George Floyd, an unarmed black man, and the unrest could hinder efforts to get the economy up and running again and sap consumer confidence, which is key to a recovery.

But while President Donald Trump, who has been banking on his economic record to win re-election, remains optimistic that growth will come roaring back, private economists warn the US will not soon see a return to pre-pandemic levels.

Labor Secretary Eugene Scalia said he remains confident the unemployment rate will fall below 10 percent by year end.

In an interview with Fox News, Scalia said “many of these jobs will come back quickly because they were still there.”

– Short-lived rebound –

But Mickey Levy of Berenberg Capital Markets said an initial rebound will be short lived.

“As the economy reopens, employment will jump initially as businesses rehire furloughed and laid-off workers, but it will take years for employment to return to pre-crisis levels as some firms permanently close and as others operate at reduced capacity,” Levy said in an analysis.

“We expect the unemployment rate to fall to 9.6 percent at the end of 2021, which would be almost three times the pre-crisis rate.”

Swonk warned that the damage in April could be revised lower than the initial report, driving cumulative jobs losses to over 30 million.

Meanwhile, states and municipalities are being forced to shed workers as well, and “those public sector losses could accelerate quite dramatically over the summer if Congress can’t agree on transfers to the states,” she said.

But Ian Shepherdson of Pantheon Economics said the jobs data could be surprisingly positive given the better-than-expected result reported by payrolls services firm ADP, meaning the jobless rate will rise only to 16 percent with a drop in payrolls of just three million.

“The (ADP data) suggest strongly that businesses in the first states to reopen quickly rehired millions of people, even as reported job postings continued to fall,” he said.