WASHINGTON (Reuters) – The U.S. economy likely created jobs at a record pace in June as more restaurants and bars resumed operations, offering further evidence that the COVID-19 recession is likely to have ended, albeit a surge. in coronavirus cases it threatens incipient recovery.
FILE PHOTO: People line up outside the Kentucky Career Center before it opens to find help with their unemployment claims in Frankfort, Kentucky, USA, June 18, 2020. REUTERS / Bryan Woolston
The Labor Department’s monthly employment report, closely watched on Thursday, would be added to a stream of data, including consumer spending, which shows a sharp pickup in activity.
But the reopening of the companies after they closed in mid-March has triggered a wave of coronavirus infections in large parts of the country, including populous California, Florida, and Texas.
Several states have been reducing or pausing reopens since late June and have sent some workers home. The impact of these decisions will not appear in the employment data, since the government surveyed companies in the middle of the month.
Federal Reserve Chairman Jerome Powell this week acknowledged the pickup in activity and said the economy “had entered a major new phase and (had) done earlier than expected.” But he warned that the outlook “is extraordinarily uncertain” and would depend on “our success in containing the virus.”
“As the economy reopens, many of the lost jobs have returned and activity is also returning,” said Steven Blitz, chief economist at TS Lombard in New York. “The problem is that the virus still has a big influence on determining the trajectory of the recovery.”
According to a Reuters survey of economists, nonfarm payrolls likely increased by 3 million jobs in June, which would be the most since the government began keeping records in 1939. Payroll recovered 2.5 million in May after falling. historically at 20,687 million in April.
Despite two straight months of surprising gains, employment would still be around 16.6 million jobs below its pre-pandemic level. The unemployment rate is forecast to drop to 12.3% from 13.3% in May.
Employment is greatly increasing as companies rehire workers when nonessential businesses such as restaurants, bars, gyms, and dental offices, among others, closed to curb the spread of COVID-19.
Economists have attributed the explosion in job growth to the government’s Paycheck Protection Program, giving companies loans that can be partially forgiven if used for wages. Those funds are running low.
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In an economy that had already fallen into recession as of February, many companies, including some that were not initially affected by the closure measures, are struggling with weak demand.
Economists and industry observers say this, coupled with the depletion of PPP loans, has sparked a new wave of layoffs that keeps weekly new claims for unemployment benefits extraordinarily high.
A separate report from the Labor Department on Thursday is expected to show that initial claims for state unemployment benefits totaled 1,355 million seasonally adjusted for the week ended June 27, up from 1.48 million the previous week, according to another survey. from Reuters economists.
“The job loss is beginning to bleed out in other sectors of the economy, income groups and different skill sets,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania.
The claims report is also expected to show that the number of people receiving benefits after an initial week of aid likely fell to 19 million in the week ending June 20 from 19.5 million the week before. These so-called ongoing claims, which are reported with a delay of a week, have fallen from a record of 24.912 million in early May.
To get a more accurate picture of the labor market, economists recommend focusing on ongoing claims and data on the total number of beneficiaries of unemployment checks. About 30.6 million people were cashing unemployment checks in the first week of June.
The unemployment rate, which is the most standard measure of unemployment, has been skewed since March by people wrongly misclassifying themselves as “employed but absent from work.” The Department of Labor’s Bureau of Labor Statistics has been working with the Census Bureau to rectify this.
Without the issue of misclassification, the unemployment rate would have been 16.3% in May instead of 13.3% and would have peaked at around 19.7% in April.
The increase in jobs last month was probably concentrated in the leisure and hospitality industry, which generally pays little. The return of these workers is expected to further depress average wages in June. Some companies are cutting wages and cutting hours. Average hourly earnings are forecast to decrease 0.7% after falling 1.0% in May. The average work week is expected to drop to 34.5 hours from 34.7 hours.
State and local governments likely fired more workers as they faced reduced incomes and stressed budgets caused by the pandemic.
“A failure of the federal government to help state and local governments and avoid revenue cliffs during the summer would further jeopardize the recovery,” said Lydia Boussour, an American economist at Oxford Economics in New York.
Lucia Mutikani’s report; Editing by Chizu Nomiyama
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