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Nobody believes the unemployment rate in the U.S. fell to 13.3% in May and reflects the true state of the labor market, not even the government beancounters who came up with the number.
What is the real jobless rate? Well, no one knows for sure, given the unprecedented scale of economic destruction caused by the coronavius pandemic, but economists guess it’s close to 20%.
Last Friday, the Labor Department said unemployment declined in May from a post-World War II high of 14.7% rate in April. The government only began publishing monthly records in 1948, but economic historians believe the jobless rate likely reached 25% in 1933, during the Great Depression.
Read:Jobless claims climb 1.88 million, but unemployment may have peaked
Also:U.S. regains 2.5 million jobs in May, unemployment falls to 13.3%
The decline in the jobless rate delighted the Trump White House but confounded economists. They predicted the jobless rate would surge to 19% or higher.
What happened? Government and private-sector economists offer a handful of explanations.
For starters, the Bureau of Labor Statistics said the unemployment rate likely would have been three points higher had the all the households surveyed answered the government’s monthly questionnaire correctly.
Some respondents who’ve been temporarily laid off or furloughed due to the pandemic have continued to list themselves as “employed but absent from work.”
It’s a seemingly small distinction, but they don’t end up in the official U.S. unemployment rate.
“Without getting too technical, workers who were furloughed and didn’t get paid should have classified as unemployed,” said Joel Naroff of Naroff Economic Advisors.
Yet even if every household gave the correct answer, the government’s unofficial estimate of unemployment would still show a decline. The assumed jobless rate slipped to a little above 16% from nearly 20% in April, the BLS said.
Not everyone is buying that unemployment actually fell in May, however. Or that it will continue on a downward trajectory.
The reason economists universally predicted another spike in the jobless rate last month is because the government’s employment survey was conducted from May 10 to May 16 — before most states loosened their lockdowns and began to reopen. At the time, the number of people applying for jobless benefits also continued to increase.
What may have also contributed to a drop in official unemployment rate is the government’s huge rescue package for small businesses that gives them forgivable loans if they keep paying workers regardless of whether they are actually working. The Paycheck Protection Act was designed to save small businesses and jobs.
The way the program is structured, noted chief economist Richard Moody at Regions Financial, millions of people who work at small businesses “would have been paid even if they didn’t work, meaning the BLS would have counted them employed.”
A laudable federal success, if that’s what happened, but it could pose a problem down the road.
The unemployment rate could surge again in a few months, Naroff and Moody said, when the PPP rescue plan ends. Many companies could resort to permanent or widespread layoffs if demand doesn’t return close to precrisis levels, as seems likely.
Another factor that’s suppressing the unemployment rate is a big decline in the number of people who say they are part of the labor force — the so-called participation rate. Nearly 6 million people have simply stopped looking for work with so few jobs available during the pandemic, the May employment report showed.
Add it all up and most economists think the jobless rate is still close to 20%. A broader measure of unemployment, known as the U6 rate, stood at 21.2% in May. It includes people who can only find part-time work and those who’ve gotten too discouraged to look for work in the past month.
“Adjusting for a decline in the participation rate and some misclassification, the level is probably being understated by around seven points,” macro strategists Jim O’Sullivan and Oscar Munoz wrote Monday in a research note.
