About Today’s “Blowout” Jobs Report

What are we to make of it?

Is it real… phantom… somewhere in the murky middle?

The United States Department of Labor issued its May unemployment report this morning.

A Dow Jones survey of economists had projected 8.33 million job losses — and a ghastly 19.5% unemployment rate — a Depression-level figure.

Yet the actual figures merely reinforce our deep disfaith in experts…

The United States economy did not hemorrhage 8.33 million jobs last month. The unemployment rate did not rocket to 19.5%.

What then did the numbers reveal?

A Blowout Number

Not only did the United States economy not shed 8.33 million May jobs…

This Labor Department reports it added 2.5 million.

May therefore turned in the greatest monthly employment gains in history — if you can believe it.

The unemployment rate ,meantime, did not blast to 19.5%… but faded to 13.3%… down from April’s 14.7%.

It is as if underdog David has slain overdog Goliath, as if Paris has felled invincible Achilles, as if Hannibal has routed mighty Rome at Cannae.

Thus the president roared with joyful abandon:

It is a stunner by any stretch of the imagination!

It’s a stupendous number. It’s joyous, let’s call it like it is. The Market was right. It’s stunning!

The president refers to the market, the seemingly vindicated market…

I Am the Market, Hear Me Roar!

The bruised but determined stock market had raged some 30% since its March bottom.

“I may be down,” it seemed to say. “But I am not out.”

Today’s unemployment report merely fed its pride, puffed its chest… and quickened its step…

829 points the Dow Jones gained today. The index presently draws within hailing distance of its February heights.

Both S&P and Nasdaq strutted like roosters today, matching the Dow Jones step for jaunty step.

The first gained 81 points on the day, the second 198.

Meantime, gold was badly knocked about today — down $39.50.

And investors fled the safety of bonds, most likely to chase rainbows in the stock market.

Bloomberg reports the options market is a scene of bullish speculation unmatched in nearly a decade.

And so the bright-siders were in full blast today…

“It Turns out That Optimism Seems to Have Been Warranted”

For example, Scott Clemons — chief investment strategist at Brown Brothers Harriman, crows:

It turns out that optimism seems to have been warranted. As the economy responded and people went back to work, the jobs were still there.

The red-letter report “suggests that the U.S. economy is more resilient than expected,” chirps Seema Shah, chief strategist at Principal Global Investors.

Adds Mr. Eric Winograd, AllianceBernstein senior economist:

It appears that businesses began rehiring workers earlier and in greater numbers than expected, a trend that is likely to continue as lockdowns ease around the country.

Here you have the overall mood.

We would be pleased beyond description if the unemployment numbers give a true economic reading.

Yet by constitution — as forged by God — invariably we seek out the grayer touches in silver linings, the hidden blemishes upon beautiful faces, the skunks lurking in woodpiles.

Is today’s report the great economic bellwether its appearance indicates?

We are not half so certain.

Record Business Creation During a Shutdown?

Reflect — for a moment — upon what the Bureau of Labor Statistics (BLS) would have you gulp down:

That in a month of general economic coma, new businesses were entering existence at a record clip.

We begin to suspect we are being taken for a sleigh ride.

Reports the subservises of Zero Hedge:

According to the BLS’s Birth/Death model, which is used to adjust the raw payrolls data for estimated new business openings and closures, a record 345K new jobs were created due to new businesses opening in a month when… the U.S. was largely shut down! This also means that over 60% of the business closures from the month of April (April Birth/Death -553K) were somehow undone in a month when the U.S. was still mostly closed down.

Will BLS next tell us the Emperor is well-clothed?

A “Miscalculation Error”

The bureau itself confesses to a “misclassification error.”

Many workers were previously listed as unemployed on temporary layoff.

Yet in the May survey they were listed as “employed but absent from work.”

That is, they were listed as employed — even though their circumstances may not have changed one jot since March, since April.

Now toss them back into the unemployment pool.

BLS concedes the actual unemployment rate may be three full percentage points higher:

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.

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).

The model of clarity it is not. But hack your way through the clutter. And recall the central conclusion:

The actual unemployment rate may be three percentage points higher… by BLS’s own admission.

What Will the Real Unemployment Rate Prove to Be?

The May unemployment rate would read not 13.3% — but 16.3%.

16.3% would undershoot the projected 19.6%. But it would overshoot the 13.3% we were told today.

Of course… we refer to the official unemployment rate.

We have previously reported that true unemployment figures run much higher…

For example: April unemployment ran to 14.7%.

Yet if you accept the verdict of Mr. John Williams and his ShadowStats site… the true unemployment rate may have been an atrocious 35.7%.

That is because Mr. Williams incorporates “long-term discouraged workers” into his models.

These hopeless unfortunates were read out of official tracking in 1994.

Mix them back in and you have your 35.7% unemployment.

We suspect Mr. Williams is having a real go at today’s “blowout” jobs report.

We hazard he will riddle it with bullet holes. We will report his findings once available.

“In an Age of Universal Deceit, Telling the Truth Is a Revolutionary Act”

Yet as Mr. George Orwell may have never said:

“In an age of universal deceit, telling the truth is a revolutionary act.”

Wall Street does a brisk business in deceit. Deceit pays handsome dividends.

Look to the stock market if it’s proof you seek. It nears fresh records — despite a woefully uncertain economic future.

Credible sources estimate the economy will spend much of the next decade clawing back.

But time discovers truth… as said the Roman Seneca.

When the verdict comes down, we cannot say.

But we suspect Wall Street will file an immediate appeal…


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning