US, Canada; Spectacular Rebounds

It’s hot

Recently here in Baltimore, the temperature is around 96° F, or 36° C, and in Toronto, it’s around 84° F, or 29° C, both much hotter than normal for this time of year.

And the US and Canadian economies were also running much, much hotter than could have ever been imagined a few months ago, posting stunning job gains compared to expectations of huge losses, and compared to even larger losses the previous month. It would appear that both economies have hit bottom and are on the rebound.

US

In the US, jobs rose a stunning +2.5 million jobs in May. It was literally stunning – the TV reporter I was watching had to stop, pause, squint, and re-read the number, with a “this can’t be right…  I must be reading this wrong” look on his face.  Economists and commentators had known that April was likely to have been the worst, but they were still expecting big job losses in May since many States were far from fully open. April job losses had set a record -21 million jobs so expectations were for a big improvement this month to a loss of only -8 million jobs. Instead, we got a massive gain of +2.5 million jobs, more than twice the previous record increase going back to 1939. The unemployment rate was equally stunning, actually falling from 14.7% to 13.3% versus much gloomier predictions of a sharp increase to 19.5%, which would have been the worst since the Great Depression.

The details of the report were superlative:

• Job gains were widespread across almost all industries.
• The biggest winner was leisure and hospitality which gained 1.2 million jobs, eight times the previous record vs. a loss of -7.5 million in April. Almost all of the gains in that sector came in restaurants and bars.
• The labor force participation rate rose a very sharp +0.6% from 60.2% to 60.8% as the labor force grew by 1.7 million people, the second-largest increase ever.
• The employment to population ratio rose an even more impressive 1.5% vs. the previous record of +1.0%, from 51.3% to 52.8%.
• Average weekly hours worked rose a gargantuan +0.5 hours (previous record +0.2) to 34.7 hours, the highest on record.
• Hourly wages fell -0.3% as workers in lower wage-earning jobs returned.

It’s no accident that the headline increase of +2.5 million very closely reflected the -2.7 million decrease in temporary layoffs. In other words, workers who had been laid off in the previous two months went right back to work in May, just as they thought they would. The data suggests that the idea the economy could just be simply be re-opened appears to have actually worked in May.

Canada

The Canadian economy posted an equally stunning performance in May, gaining +290k jobs vs. a consensus of a -500k loss. The gain came after two crushing months of losses. It was the largest increase on record, easily beating the previous record of +100k.  Quebec, which had opened several weeks before the other provinces, created the most jobs, +230k. All of the other provinces gained, and six set records. However, Ontario, which has been a bit slower to reopen, lost -64.5k jobs.

Job gains were widespread. The goods sector added +165k jobs, three times the previous record of +51k, while services piled on another +125k vs. the previous record of +89.3. On a more detailed level, big winners included manufacturing which added +79k (previous record +31k), construction which contributed +74k (previous record +41k), and accommodation and food services which piled on another +42k (previous record +31k). 

Hours worked rose +6.3% m/m, twice the old record of +3.1%. The participation rate rose +1.6% (three times the old record) to 61.4%, while the employment rate rose 0.8% (vs. the previous record +0.5%) to 52.9%.  Even the increase in the unemployment rate from 13.0% to 13.7% was for the good reason that more Canadians who were out of work said they were now looking for jobs and hence are being counted as unemployed.

Let’s have some caution in our exuberance though.  The rapid turnaround in the jobs situation in May probably reflects the “low-hanging” fruit of workers who were anxious to return to their jobs, and who had jobs awaiting them. While next month may show another strong increase in jobs, further increases in the coming months and quarters are likely to evolve at a much slower pace. It will take until well after 2021 to get back to any semblance of “full employment”. 

Finally, the COVID data, while not so encouraging worldwide, looks quite good in the US and Canada.