Both Canadian and American labour market data for May surprised to the upside, and the Treasury market has sold off.
My view always was that guessing what would happen this month is a bit of a waste of time, and we won't get a clean read until the June data. A mechanical bounce in employment was always in the cards, the question is when, and at what levels.
The figure above puts the U.S. data into perspective. The pandemic has disrupted data measurement, but one can hope that the sample of households polled remains representative. The latest data point shows a bounce, but the level is far below pre-pandemic levels. The authorities have to hope that the upcoming months closes more of the gap.
The risk is that thinly-capitalised firms continue to fail. This will be a much slower-moving process, and will be easier to track in the data. One can hope that the income injection from the governmental sector will offset these losses, but that remains to be seen. Another thing to keep in mind is that the United States might decouple from other countries, in that the population seems to have given up on caring about the pandemic.
With two month's data under our belt, I hope to start looking at the data in more detail, so as to be ready for the June employment data. The question is to get a clean read on how much unemployment remains once the relatively safe industries have returned to work. That will tell us how large a policy challenge countries face in the quest to return to something resembling full employment.
(c) Brian Romanchuk 2020