Why the shockingly positive jobs report could be a sign the government’s small business rescue program is paying off

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From Market Insider

  • Friday’s May jobs report beat economists’ expectations, showing the US added jobs in the month and that the unemployment rate declined. 
  • The unexpected and dramatic rise in employment “is clearly linked to the effectiveness of the PPP and other federally-funded re-payrolling initiatives,” Dan Alpert, co-creator of the U.S. Private Sector Job Quality Index, told Business Insider.
  • Still, it remains to be seen how many businesses stay open and employ the same number of people in the coming months amid the coronavirus-induced recession. 

The surprising better-than-expected May jobs report could be a sign that the Paycheck Protection Program, put in place by the government to help keep small businesses afloat amid coronavirus pandemic lockdowns, is paying off. 

On Friday, the report from the Labor Department showed that the US economy added 2.5 million jobs in May and that the unemployment rate decline to 13.3%, improving from the previous month and bucking the consensus economist forecast for a dismal print. 

The unexpected and dramatic rise in employment “is clearly linked to the effectiveness of the PPP and other federally-funded re-payrolling initiatives,” Dan Alpert, co-creator of the U.S. Private Sector Job Quality Index, told Business Insider.

According to Alpert, it’s likely that the May report is showing a shift of workers from unemployment benefits to the small-business program, but doesn’t necessarily mean more people were actually back at work. 

The Paycheck Protection Program was established as a part of coronavirus aid relief. It provides small-businesses loans that are forgivable if mostly used for payrolls during the coronavirus pandemic. 

The Bureau of Labor Statistics counts any worker who got paid in the reference period for the jobs report – in this case, May 1 to 12 – as employed whether they worked or not. In May, the industries with the biggest job gains were leisure and hospitality, retail, and education and health services – mostly low-wage and low-hours service sectors. 

“Clearly, those weren’t open” at the beginning of May, Alpert said. Some states did begin to reopen slowly in April, but it wasn’t until the end of May that all 50 had relaxed at least some of the strict coronavirus lockdown restrictions. 

Other economists agree. “I find it to be really unlikely that a lot of leisure and hospitality businesses are seeing that much of an uptick in demand,” Martha Gimbel, an economist at Schmidt Futures, told Business Insider. 

What this means is that the better-than-expected data in May’s report might not be due to a strong reopening, or necessarily show the beginning of a swift recovery. It remains to be seen how many businesses survive in the coming months, and how many will reduce payrolls because of a hit to demand in the ensuing coronavirus-induced recession. 

A “V-shaped” recovery hinges on unemployed workers returning to work right away and Americans resuming consumption as soon as possible to get back to pre-coronavirus levels and grow from there. 

Friday’s report is good news, but there is still a long way to go, said Eric Winograd, senior economist at AllianceBernstein, in a Friday note. While one-off government stimulus checks and unemployment benefits have helped to replace some lost income, “it will have to be rehiring that keeps the consumer solvent in the coming weeks,” he said. 

And, the report may make it harder for Congress to pass additional stimulus, according to Winograd. 

“Those members who prefer to wait and see whether past stimulus have had an effect now have some ammunition to use in making that argument,” he said. “Politics being what they are, I don’t have an empirically robust way to assess the probability of another stimulus bill other than to observe that it is lower today than it was yesterday.”

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