Optimistic U.S. unemployment figures under-reported due to misclassifications

U.S. unemployment dropped unexpectedly in May to 13.3 per cent as reopened businesses began recalling millions of workers faster than economists had predicted. But the Labour Department for the second straight month acknowledged making errors in counting the unemployed during the coronavirus outbreak, saying the real figure is worse than the numbers indicate.

Economists had expected the rate to approach 20 per cent, driven up from 14.7 per cent by job losses topping eight million. Their forecasts woefully missed the mark. Part of the explanation is the difficulty of assessing data when the situation is changing so quickly.

But it also reflects an acknowledged difficulties by the Labour Department's Bureau of Labour Statistics in its information gathering. Millions of people appeared to be erroneously classified by the survey as not working but employed. These people should have been classified as on temporary layoff and therefore unemployed. Had they been counted correctly, the jobless rate would have been roughly three points higher — 16 per cent, the government said.

The same issue marred the April jobs report. In that case, the unemployment rate would have been roughly five points higher than the 14.7 per cent reported.

The jobs report is drawn from a pair of surveys. A survey of households establishes the unemployment rate. A separate survey of employers determines how many jobs were added or lost. Response rates for these surveys were lower than usual in May because of the viral outbreak. But the government still gathered enough responses to produce the jobs report.

"The household survey response rate, at 67 per cent, was about 15 percentage points lower than in months prior to the pandemic," the report said.

The Labour Department also includes a broader measure of unemployment. This measure includes not only people who are out of work and looking for a job but also people who stopped looking or who were reduced to part-time hours. That rate was 21.2 per cent in May.

2.5 million jobs added

Still, after weeks of dire predictions by economists that unemployment in May could hit 20 per cent or more, the news that the economy added a surprising 2.5 million jobs last month is evidence that the employment collapse most likely bottomed out in April.

At the same time, economists warn that after an initial burst of hiring as businesses reopen, the recovery could slow in the fall or early next year unless most Americans are confident they can shop, travel, eat out and fully return to their other spending habits without fear of contracting the virus.

"We are witnessing the easiest phase of growth as people come off temporary layoffs and come back to their employers," said Jason Furman, a Harvard economist and former top adviser in the Obama White House. "And once employers are done recalling people, the much harder, longer work of recovery will have to proceed."

An exultant U.S. President Donald Trump seized on the report as evidence that the economy is going to come back from the coronavirus crisis like a "rocket ship."

"This shows that what we've been doing is right," said the president, who has pushed governors aggressively to reopen their economies amid warnings from public health officials that the country is risking a second wave of infections on top of the one that has killed over 100,000 Americans.

Nearly all industries added jobs last month, a sharp reversal from April, when almost all cut them. Hotels and restaurants added 1.2 million jobs in May, after shedding 7.5 million. Retailers gained 368,000, after losing nearly 2.3 million in the previous month. Construction companies added 464,000 after cutting 995,000.