Market Minute - June 9, 2020
by Scott Rosenquist, CFA
Employment data released last week surprised to the upside as the Bureau of Labor Statistics (BLS) reported 2.5 million jobs were added last month while the unemployment rate declined to 13.3% from 14.7%.
These numbers were not expected by the market and it reacted accordingly with the benchmark 10 yr. Treasury yield rising above .90% and the S&P 500 index rose sharply nearly erasing this year’s loss. Considering the consensus forecasts for employment were a loss of 7-8 million jobs and unemployment rate of close to 20%, the report last week was incredible.
Looking past the headline numbers is important. Most of the job gains came from sectors hit the hardest with sharp rises in leisure and hospitality as the economy slowly reopens. Construction, retail, and healthcare also showed a rebound in employment. The BLS did report an error in the classification of some workers who were classified as employed but absent from work. Including those would have added about three percent to the headline unemployment rate. Also, a broader measure of unemployment which factors in those working part-time due to economic reasons and discouraged workers came in at 21.2% which is still extremely high although down from last month’s 22.8%.
The Payroll Protection Plan (PPP) aimed at incentivizing small businesses to rehire workers appears to be working. Companies receiving loans will have them forgiven if a portion of those funds are used to rehire workers within a specified time. The rules for PPP were relaxed last week allowing more flexibility for companies receiving assistance. Small businesses have been hit the hardest during the pandemic and are an important source of jobs in the United States.
Now that the economy is reopening, we need to see the positive data flow through to other economic indicators such as retail sales and the industrial numbers. The government has extended extraordinary support to the economy through lending programs and low interest rates but that will taper off at some point. We continue to monitor the progress of the recovery as more data is released.
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