• Steve Coker, CFP

The Labor Market Isn’t Dead Yet

Updated: Jul 20


May’s employment report provided some much-needed positive news in the midst of a terrible economic picture. Instead of the large drop in employment and jump in unemployment that many had predicted, payrolls improved, adding 2.5 million jobs for the month, driving unemployment down from 14.7% in April to 13.3% in May. The gain in employment was the largest since records began in 1939. To say that the jump in employment was a surprise is an understatement. Some forecasts called for unemployment to rise to 20%. Of course, the report was so unexpected that its accuracy was immediately questioned. Let’s take a look at what’s happening in the job market and what it may mean for investors.


To put May’s payroll gains in context, the number of unemployed persons in the US has increased by 15.2 million since February, rising to 23 million in April before falling back down to 21 million in May. There is still a long way to go to get to a healthy job market, but the numbers are finally starting to improve. The gains in payroll were very broad with some of the hardest hit sectors, like leisure and hospitality, making up almost half of the increase as states relax social distancing rules and allow restaurants and bars to reopen. Construction was the next biggest gainer, along with Education and Healthcare.


Getting America back to work is admittedly being complicated by the additional $600 per week unemployment that is being provided by the Federal Government. There is no doubt that many of those workers claiming unemployment will need the funds to simply get by. However, between the benefits paid by state unemployment insurance funds, plus the additional $600 per week added by the federal government under the CARES Act, millions of Americans are making more on unemployment than they would at work, creating an incentive to simply stay unemployed until the benefits terminate. The $600 ‘enhancement’ will end at the end of July which may create greater incentive to move back into the workforce.


The other program complicating the labor market is the Paycheck Protection Program (“PPP”), also part of the CARES Act. Under the terms of the program, small businesses can receive forgivable loans from the Federal Government to help pay salaries. The loans will be forgiven if certain conditions are met, most notably if the loan is used to cover payroll costs, mortgage interest, rent, and utility costs for the 8 weeks period after the loan is made. While the loans provide a good safety net for employees for 8 weeks, those jobs may not be there once the program ends. Therefore, the PPP may be providing a temporary boost to employment that will fade unless states succeed in opening their economies.


The bottom line is that the jobs report was a welcome bit of good news, but risks remain. The stock market is looking past the economic downturn and the civil unrest, anticipating a recovery. As investors we welcome the jobs report and hope that the sunshine can continue to break through.

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

Subscribe to our Weekly Newsletter

2945 Townsgate Road Suite 200

Westlake Village, CA 91361

+ 888-571-5582

help@cedarstoneadvisors.com

Contact Us