Finding good news in the loss of another 3 million jobs isn't easy, but the steep drop in private payrolls for May could be a sign that the worst over.
ADP reported Wednesday that companies shed another 2.76 million positions last month. Under normal circumstances, such a report would be considered catastrophic. But these aren't normal times.
Instead, a count that was well below the 8.75 million estimate provided hope that the most severe jobs crisis in U.S. history is about to turn around as an economy battered by the coronavirus pandemic takes its first steps to reopening.
"The good news is I think the recession is over, the Covid-19 recession is over, barring another second wave, a major second wave, or real serious policy errors," said Mark Zandi, chief economist at Moody's Analytics, which puts the private payrolls report together with ADP. The bad news, he added, is that "the recovery will be a slog until there's a vaccine or therapy that's distributed and adopted widely."
While the ADP count can be volatile and vary widely from Street estimates, this one took that to another level.
However, Zandi said there are several explanations.
One is that last week's jobless claims report provided the first indications that the pace of layoffs had slowed notably and that people were going back to work.
Continuing claims, or those workers receiving unemployment benefits for at least two weeks, tumbled by nearly 3.9 million even as first-time claims numbered more than 2.1 million. Continuing claims peaked at 24.9 million on May 9, but that was three days before the sample week that both ADP and the Labor Department use for their estimates.
Zandi said he still expects the unemployment rate to top out above 20%, the worst since the Great Depression. He estimated that some 50 million American workers have been impacted in some way by the coronavirus-induced recession.
Even at an initial reading of 20.5 million, the government's estimate for April probably undercounted the total due to a tabulation discrepancy in which millions of workers who had been classified as "absent from work" actually should have been considered unemployed. The Bureau of Labor Statistics estimated that the 14.7% unemployment rate would have been nearly 5 percentage points higher had those workers been counted correctly.
"The job loss is abating. Layoffs appear to have peaked in late March and early April and they were winding down by early May," Zandi said. "I would expect job growth to resume in June."
Zandi projected that unemployment likely will level off around 10%, which was the financial crisis peak, and stay there unless Congress approves more fiscal stimulus.