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The better-than-expected U.S. jobs report for May likely will hamper the push for another big coronavirus relief package, but a divided Washington probably still will deliver an additional aid measure in July, according to analysts.
The surprising report on Friday showed the U.S. economy added 2.5 million jobs last month as the unemployment rate fell to 13.3% from 14.7%. Economists polled by MarketWatch had expected a loss of 7.25 million jobs and an unemployment rate of 19%.
“While 13.3% unemployment is nothing to write home about historically, there is some merit to the argument that a better-than-expected number further reduces the sense of urgency on Capitol Hill for a fourth stimulus bill and also bolsters Republicans’ position that a comparatively small-scale package in the [$1 trillion] range is all that’s needed from here (versus the Democrats’ [$3 trillion] HEROES Act),” said Henrietta Treyz, director of economic policy at Veda Partners, in an email to MarketWatch.
Related:‘The biggest payroll surprise in history’ — economists react to May jobs report
And read:Surprising May gain in jobs dents view that Fed will stay at zero for years
The Bureau of Labor Statistics conceded on Friday that the reported unemployment rate for May would have been three percentage points higher if household data had been properly recorded.
“There is a lessening of the crisis mentality forcing Republicans to act,” Ben Koltun, a senior research analyst at Beacon Policy Advisors, told MarketWatch in an email. “The GOP would have been hard pressed to say they weren’t going to support major legislation when unemployment is above 20 percent, rivaling the depths of the Great Depression. With the stock market nearly recovered and businesses and employment on the upswing, the necessity for quick action dissipates.”
U.S. stocks US:SPX US:DJIA have rallied from their March lows, and the broad S&P 500 index surged on Friday to close within 5.7% of its February peak, while the tech-heavy Nasdaq Composite US:COMP scored an intraday record. And U.S. stocks were again on the ise Monday morning.
“Still, a Phase Four deal is likely at the end of July,” Koltun added. “Republicans don’t want the unemployment numbers and economic recovery to plateau. So they will still come to the table with Democrats.”
The next package has been called Washington’s “Phase 4” response to the coronavirus crisis as it would follow April’s $484 billion “Phase 3.5” measure, which came after the $2.2 trillion CARES Act that passed in late March. Before that, Washington delivered a mid-March package costing an estimated $192 billion, and an $8 billion measure that was finalized in early March.
Related:How Congress is spending trillions in response to the coronavirus crisis — in one chart
Koltun also noted that Friday’s encouraging report can be attributed to the government’s intervention so far, such as the Paycheck Protection Program and transfers to buoy personal income.
Treyz said the “national conversation will drift back to the U.S. economy, but if anything delays a stimulus IV bill from here, it won’t be just the 13.3% unemployment number.”
“There are two other developments that play a role in reducing our odds of a stimulus bill happening in July from their previous near-100% range to [about 80%] today,” she said. “We’ve seen a significant change in China–Hong Kong relations, which caused a substantial outcry amongst lawmakers in Washington, and we’ve seen the nation breakout into protests over racial inequality in the wake of the killing of George Floyd.”
See:Revoking Hong Kong’s special status is Trump’s ‘nuclear option,’ analysts warn
Also:Dramatic week’s events open fissures between Trump and military brass, Trump and GOP lawmakers
Treyz also said the “immediate effect of this jobs number is probably most obviously impactful to the $600/week booster payment included in the CARES Act.”
“That’s always been an issue for the Republican caucus and now they’ll likely dig in further to reduce or shorten the duration of any extension in that provision beyond July 31,” she said.
See:The extra $600 Americans receive in weekly unemployment benefits ends in July
Even before Friday’s jobs report, some Republicans in recent weeks have questioned the need for additional aid. Analysts at Height Capital Markets last month noted that the White House is “focused on a reopening narrative that seems at odds with significant additional legislation.”
Related:Washington probably won’t deliver another coronavirus aid package, says Republican senator
Also read:Next coronavirus aid package to pass Congress by late July, analysts say
White House adviser Kevin Hassett told CNBC on Monday that “100% there is going to be a Phase 4 deal. The question is: What’s going to be in that deal?”
“We’re watching the data and making a plan for an upside scenario and a downside scenario,” he added. “We had a really good month of jobs numbers. We get another month like that in June, then I think it absolutely would affect the things that we pursue in July in the Phase 4 deal.”
House Speaker Nancy Pelosi, a California Democrat, said in a statement on Friday that “now is the worst possible moment to take our foot off the gas,” with her remark referring to the need for more aid and coming in response to the jobs report. “The president must join us to support real action to protect lives and livelihoods, rather than hide behind these jobs numbers and pretend that the job is done.”
This is an updated version of a report first published on June 5.
