Common Cents & Job Growth (?) on June 5, 2020

Everyone has heard the cynical expression: “if it seems too good to be true, it probably is.” Obviously, that isn’t always accurate, and life wouldn’t be worth living if it was. For example, I went quail hunting this one time which included a lunch. The staff at the camp fried up chicken wings using Crisco in a cast iron skillet, heavy on the black pepper and paprika. Those, my friends, were too good to be true, but they were and I am sure you have your own examples.

But Employment Situation reports that are so extraordinary as to defy reason? Change in Nonfarm Payroll data that is over 4 standard deviations from the mean of 78 analyst estimates (to the good)? An Unemployment Rate that is also over 4 standard deviations from the mean of 76 analyst estimates (to the good)? An entire report which presented information, there in black & white, that was almost in complete contradiction, complete, with the remainder of the employment data ‘we’ have been absorbing?

Never in my career have I seen the Street whiff so badly with its estimates for a report. To say everyone got today’s number wrong would be putting it lightly. Further, don’t let anyone tell you they saw it coming either! The average estimate for Change in Nonfarm Payrolls was a decline, I repeat a decline, of 7.367 million. The range of estimates was from -800K to -12MM. Again, the best-case prediction was for a loss of ‘only’ 800K jobs.

The Bureau of Labor Statistics (BLS) announced the economy actually created 2.509MM payroll jobs last month. So, the math is: 2.509MM – (7.367million) = 9.876 million. That is by how many jobs ‘Wall Street’ missed with its estimate. That is one way of putting it. Another way is: 78 well-educated analysts, representing all of the largest investment/financial firms in the country and many institutions of higher learning, missed the payroll number by roughly Sweden.

Again, at first blush, never in my career had I seen such a shocking report.

Before you think Wall Street really just doesn’t know what in the [world] it is doing, let me give you some data, bullet point style:

  • During the month of May 2020, there were 12.312 million initial claims for unemployment insurance.
  • The 4-week moving average for ‘continuing claims’ on May 23 was 22.446 million. By comparison, the 4-week moving average for ‘continuing claims’ on May 2 was 19.689 million. For grins, the same series was 17.030 million for the 4 weeks ending on April 25, 2020.
  • While much better than expected, the ADP National Employment Report estimated the US economy shed 2.760 million jobs during May. While a different series, it uses a somewhat similar methodology as the BLS does in estimating payroll gains or losses.
  • In the ISM Non-Manufacturing Report on Business, no industry surveyed reported an increase in employment. All 17 reported declines.
  • In the ISM Manufacturing Report on Business, 16 of the 18 industries surveyed reported a decrease in employment last month. The 2 which reported an increase were: Leather Apparel & Allied Products, and Paper Products.
  • Going back to 1939, the previous high for monthly payroll growth was 1.118 million in September of 1983.

Essentially, there was little reason and even less hard data to suggest the US economy created jobs during May 2020. What’s more, there was absolutely no indication any job growth, if in fact there was any, would be more than double the previous all-time high. Again, double the previous all-time high.

So, somehow, all these analysts, academics, and money managers missed, by a longshot, the single biggest month for job growth in the history of the United States. Missed it by a mile…I mean it wasn’t even close. Just didn’t see it. Got it completely and unfathomably incorrect. Really missed the boat. Laid an egg, struck out, misfired, muffed, misjudged, and otherwise botched the most important economic release (maybe in history).  Have I mentioned how wrong everyone was about this report?

Then, again, maybe they aren’t. Consider the following from the “Coronavirus (COVID-19) Impact on May 2020 Establishment and Household Survey Data”:


“In the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week (May 10th through May 16th). Workers who indicate they were not working during the entire survey reference week and expect to be recalled to their jobs should be classified as unemployed on temporary layoff. In May, a large number of persons were classified as unemployed on temporary layoff.

However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.

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 (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

More information is available at .”


I admit, this is so much gobbledygook, real bureaucratic-ese this stuff. However, the I submit the reason why Wall Street missed these numbers as bad as it did is pretty simple: The Payroll Protection Program (PPP). You see, the PPP launched on April 3rd, and it is very easy to envision or imagine a large portion of the funds didn’t make their way through the system in time for the April survey period. As a result, everyone who was on temporary layoff and not getting paid was considered unemployed, in both the Establishment and Household surveys.

However, by the May survey period (the 10th through the 16th), the PPP program was in full swing. Assuming employers used at least some of this money as intended, a large number of workers previously on an unpaid temporary layoff (in April) were NOW getting at least some of their paycheck. As a result, they went from unemployed to employed without technically going back to work. Hmm. If so, that makes the underlined portion of that last paragraph a little clearer, doesn’t it?

These workers still aren’t back at their jobs from April, but they are NOW getting PPP payments (to some degree), so they are technically employed. I suppose the program is working as perhaps intended. However, counting laid off workers as employed because they are receiving (for all intents & purposes) a government handout isn’t quite the same as true job growth. I don’t think.

There you have it…. Federal relief packages at work, protecting an estimated 4.747 million jobs during the month (at least those jobs which are getting a paycheck but ‘absent from work’). That is multiplying 158.227 million (the estimated labor force) by 3% (from the estimate in the statement by the BLS above). Okay…fair enough. I get it now. Relief checks are creating jobs out of thin air even if they aren’t actually creating the same amount of additional work. I guess you could say it has something to do with how the BLS accounts for things.

In the end, this morning’s number seemed too good to be true, and it both was and wasn’t. A lot of people technically have their jobs back thanks, I would argue, to the PPP. It will be interesting to see what happens to all of these ‘employed but absent from work’ jobs after the funds from this relief package are gone. Then, and only then, will I take my own little asterisk off the May 2020 Employment Situation report.

Have a great weekend.

John Norris

Chief Economist


As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.