Get Ready for an Onslaught of Economic Happy Talk
Financial markets surged to post-COVID-19 highs on the heels of a shockingly strong May employment report from the Department of Labor that was misleading at best in its estimation of the U.S. unemployment rate. Consensus expectations of an unemployment rate approaching 20% were blown away by a report that instead said unemployment moved lower, to 13.3% from 14.7% in April.
That data point gave ammunition to those advocating that a V-shaped recovery will ensue. Market commentators marveled at the resilient U.S. economy springing back to life so quickly after weeks of shutdown. The White House took a victory lap the morning that the report was released. Such optimism was misplaced, based on a full reading of the report.
A prominent disclosure on page six of The Employment Situation (a.k.a. the “Jobs Report”) for May 2020 clearly explained that the unexpected drop in the unemployment rate was the result of a significant misclassification of unemployed workers who are expecting to be called back as employed workers, instead of unemployed on temporary layoff.
The Bureau of Labor Statistics (BLS) said it was investigating why this misclassification error was occurring but would leave the survey results as initially recorded for now. There was nothing nefarious about this error; it was fully disclosed in a call-out box. However, the size of the misclassification error was material, with BLS stating, “If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported.”