INDICATOR: June Employment Report, Weekly Jobless Claims and May Trade Deficit

KEY DATA: Payrolls: +4.8 mil.; Retail: +740,000; Restaurants: +1.5 mil.; Manufacturing: 356,000/ Unemployment Rates: 11.1% (was 13.3%)/ Claims: 1.4 mil. (-55,000); Continuing Claims: 19.3 million (+59,000)/ Trade Deficit: 54.5 bil. (Up $4.8 bil.)

IN A NUTSHELL: “Despite continued massive layoffs, the reopening is working as millions of jobs have come back.”

WHAT IT MEANS: The labor markets are coming back. Nearly five million new positions were added in June, which was greater than expected. The gains in a variety of sectors were massive. Restaurants, retail, health care, manufacturing, amusements, construction and temporary workers all posted historically large increases. But that also shows the extent of the damage created by the virus. Over 75% of the industries reported increased workforces, one of the highest percentages on record. That said, we need to put things into perspective. In May and June, firms have added back 7.5 million workers, which is phenomenal. However, that is only one-third the 22.2 million jobs that were lost in March and April, so we still have a very long way to go. On the unemployment front, BLS is getting things together, finally. The unemployment rate dropped sharply again and the misclassification was a maximum of one percentage point. But again, we need perspective. The peak rate during the Great Recession was 10%, while the February rate was 3.5%. So, we have come a long way but we are still in pretty bad shape.

How fast jobs can be added and the unemployment rate can come down is unclear given the continued huge number of people applying for unemployment compensation. The level was down again, but the decline is still extremely modest. Over the past month, roughly six million people have lost their jobs. Also, last week, the number of people receiving unemployment checks rose and remains above nineteen million.

The trade deficit soared in May, widening by nearly ten percent. Exports cratered, falling over four percent. Imports were down much more modestly. So far this quarter, the average monthly deficit has increased by over fourteen percent, indicating that trade will subtract enormously from second quarter growth. It is beginning to look like the GDP decline for the quarter could be greater than I expected (low twenty percent decline) and closer to those who had truly awful numbers (thirty to even forty percent decline).

IMPLICATIONS: The employment data look good, but you have to read them carefully. For example, the number receiving unemployment insurance is about 1.5 million above the number of people BLS has as being unemployed in the employment report. That, of course, makes absolutely no sense since you cannot be on unemployment insurance and not be unemployed. The disconnect between the two data sources will be reconciled eventually. Ultimately, we will have a better indication of the true state of unemployment, but right now that level is unclear. In addition, we need to look at how far we have come back compared to how far we fell. Thus, the really important point is that the 7.5 million jobs added in the past two months still leaves us nearly 15 million below the February level and the 11.1% unemployment rate is still 7.6 percentage points lower. We are recovering from the virus devastation, but we still have a long way to go.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.