May’s US unemployment numbers came in stronger than expected. Simon Brown explains what we can learn from ‘getting it wrong’.
I have written before about what happens when we’re wrong. May US unemployment data necessitates reconsidering what many of us have been thinking about the recovery from the pandemic.
The number came in significantly stronger than expected. The market had expected May’s number to be worse than the 14.4% recorded for April but, instead, it clocked in at 13.3%. Not one analyst had expected an improvement and it shocked the investment community.
Part of the initial response to the data was that the May figure had been rigged due to the calculation of a category called “employed but absent from work”. This category is used to reflect temporary absences from work. The US Bureau of Labor Statistics admits it changed the way it uses this figure from March. While correcting for this change would have seen May unemployment at 16.4%, this would have also sent the April data higher, resulting in the May unemployment rate still dropping. So, the bottom line is that May saw US unemployment decrease, whichever way we look at the numbers.
Instead of screaming “rigged” as many did, we should instead take the advice oft attributed to John Maynard Keynes: “When events change, I change my mind. What do you do?”. Whether or not Keynes actually said this can be disputed, but the idea behind it is certainly valid.
In the case of US unemployment, the reality is that Americans are going back to work sooner than anybody expected while the second reality remains that the current unemployment rate remains the highest since the Great Depression.
When accepting this, something becomes clear: April was probably the worst for the US economy and, to a degree, the global economy. We’re seeing May purchasing manager index data still below 50, but pretty much across the board it has improved from April, and this makes sense. April was a hard-lockdown month, with over 50% of the world’s population under movement restrictions. Then May saw countries across the world lift these restrictions and, as such, we’re seeing more economic activity.
Now sure, different economies and sectors will be responding differently, and many will be recovering slower than the powerhouse that is the US economy. And the risks remain as many US states are reporting increasing cases. But the data is what it is – hard data that tells us what’s happening on the ground.
So now we can shift to the real burning question. How long before the US and global GDP levels are back at December 2019 levels?
I use December 2019 because that’s a pre-pandemic period and I use GDP because even with its many faults it is a good measure of the size of the global economy.
But answering that question is hard. We’re already seeing second waves of the pandemic in US states and we have no idea how bad they’ll be, and how the states will respond. At this point we also have no idea when the many businesses that are currently closed will re-open; or how many businesses will have to close permanently.
So, a lot remains unknown. And, while jobs data tells us that the worst (economically) is perhaps behind us, what it doesn’t tell us is how quickly we’ll get back to December 2019 GDP levels.
But don’t argue the data. Accept it and incorporate it into your thinking about the longer-term recovery. And remember that circumstances are changing fast and much remains unknown. Adaptability remains the key for now.