Market Update June 5, 2020 – Our Quick Take on the Surprise Jobs Rebound

Published by Waycross Partners on

The May jobs report was released this morning and was much better than expected, with the US unemployment rate falling to 13.3% as payrolls rose by 2.5 million, rather than the expected additional job losses and a rise in the unemployment rate to around 19%. According to Bloomberg, out of 78 reported economist forecasts, NONE expected job gains in May.

So, what do we think happened?

Job increases were widespread across industries but particularly noticeable (about half) in food service. Following COVID-19-related lockdowns, restaurants slowed/closed and employees were furloughed.  Over time, as the industry adapted to curbside service and slowly started to reopen, hiring managers were able to recall these furloughed employees.  But…not all of these employees elected to return, for various reasons, including continued COVID concerns and the widely cited notion that they may actually be making more money being unemployed due to government subsidies. 

So as a result, hiring managers turned to new workforce participants (most likely undergraduate students that have time on their hands because their schools closed).  These people were not technically unemployed before because they were not actively seeking jobs.  But if you pay them an extra $2 or $3 an hour, they will go get a job. 

Net net: The Treasury curve is steepening due to the lower probability of more stimulus.  A steeper curve (and lower risk of bad loans) bodes well for banks and other cyclicals.