Wall Street was thrown a curveball by the U.S. Bureau of Labor Statistics on Friday, as nonfarm payrolls rose by 2.5 million in May. The unemployment rate subsequently dropped to 13.3% from 14.7% in April.
Both measures blew past estimates, with economists expecting 8.3 million job losses and the unemployment rate to increase to 19.5%.
The 2.5 million jobs gained in May is by far a new record dating back to 1939. The only other previous month in which more than one million jobs were added was in September 1983, when the U.S. economy added 1.1 million jobs.
ptimism over the economy reopening and the latest jobs report, the most common debate remains whether the rally is sustainable or not.
Despite much of the country having reopened, consumers are not spending at the same rate as they were before the coronavirus hit the U.S. All eyes will now be on corporate earnings in the months to come to see if the rebound in stocks is justified.
The sectors showing the largest increase in job gains in May were those most affected by the coronavirus shutdowns. The leisure and hospitality industry added 1.2 million jobs after losing 7.5 million in April. The construction industry saw the second-highest number of job gains in May, with 464,000 jobs added, recovering roughly half of April’s losses.
The stock market, despite rallying for the better part of two months on hopes of the economy recovering, soared on the news. The Nasdaq Composite rallied more than 2% to reach a new all-time high. The S&P 500 and Dow Jones Industrial Average rose 2.6% and 3.1%, respectively. The S&P 500 is now less than 6% from its record high, while the Dow is just over 8% below its all-time high.
If the jobs report seems too good to be true, it’s because it may have been. As a result of an error in how furloughed workers are counted in the data sample, the BLS admitted the unemployment rate may be understated. The error could make the unemployment rate “about 3 percentage points higher than reported,” according to the BLS.
“BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue,” the BLS said.
“According to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.”
With stocks now at or back near their record highs on o
If it turns out the rebound in the market is justified by earnings, the other elephant in the room, which is far more important to the market, is whether the Federal Reserve can continue to justify the rate at which it has expanded its balance sheet to support the economy.