‘Official’ unemployment data is not reflective of actual unemployment (COVID skew)(Updated)

The breaking news headline is Unemployment rate falls to 13.3%, US adds 2.5 million jobs:

Economists had forecast that the government will report Friday that employers shed 8.5 million more jobs last month on top of 21.4 million lost in March and April. A figure that large would raise the total losses since the coronavirus intensified nearly three months ago to almost 30 million — more than triple the number of jobs lost during the 2008-2009 Great Recession.

The U.S. unemployment rate fell to 13.3% in May, with 2.5 million jobs gained, the government said on Friday.

But that number is not quite what it appears to be because of the way unemployment numbers are estimated. I will call it the “COVID skew” of the unemployment data. As Axios explains, The difficulty of calculating the real unemployment rate:

The shocking May jobs report — with a decline in the unemployment rate to 13.3% and more than 2 million jobs added — destroyed expectations of a much worse economic picture.

Why it matters: Traditional economic reports have failed to keep up with the devastation of the coronavirus pandemic and have made it nearly impossible for researchers to determine the state of the U.S. labor market or the economy.

• • • Data shows more than 37 million have applied for or are receiving some form of unemployment benefits as of May 30, meaning the unemployment rate was likely significantly higher.

How it works: The Labor Department’s surveys capture the period through the 12th day of the month, excluding job losses after that date. To calculate a closer estimate of U.S. unemployment Axios added…

• • • The Labor Department’s continuing jobless claims up to May 23.
    • Continuing claims for the newly created Pandemic Unemployment Assistance (PUA) program through May 16.
    • Initial claims for both programs during those periods.
    • Other unemployment programs, including newly discharged veterans and the Pandemic Emergency Unemployment Compensation program.

The big picture: Even these more comprehensive estimates likely miss the mark, as not every state is providing PUA figures.

• • • Plus, there remains an unknown number of people who have either not applied for unemployment benefits, have tried and failed, or who have applied but have not had claims processed yet.

What it means: While it’s likely many Americans have returned to work, the increase in initial claims and consistently high level of continuing claims suggest the problem did not improve in the back half of May after many states began removing “stay at home” orders.

The state of play: A survey of more than 88,000 small businesses by online business network Alignable from May 23–25 found 68% are open now, but 28% were offering fewer products or services.

• • • 3% of firms surveyed said they had closed permanently.
    • Less than 50% of customers have returned, firms say.
    • Only 47% employees are back on payrolls, with 7% more expected to be hired by the end of June.

Highlighting these difficulties, the Economic Policy Institute attempted to quantify the number of unemployed who were missed in the Labor Department’s April jobs report.

• • • This “adjusted” unemployment rate includes those who are officially counted as unemployed as well as what EPI senior economist Elise Gould calls the “misclassified” — those who reported that they were employed but not at work for other reasons, and those who had been employed but left the labor force when the virus hit and are not actively seeking work.
    • “Millions of would-be job seekers have left the labor force in the time of COVID-19 for various reasons, whether it’s because they don’t see any prospects in their occupation, they are not looking because they are concerned about their health or the health of members of their household, or they have to care for a child whose school or daycare closed.”

UPDATE: Daily Kos has a good summary of the unemployment numbers, but I want to highlight what we can expect in the coming months as the $600 supplemental benefit will expire on July 31:

Although no analyst predicted anything like today’s gains, the pain nevertheless extends far and wide. Absent aggressive action from Congress, this will obviously increase, with the likelihood of a deluge of evictions and defaults on the horizon. People are skipping payments on credit cards, auto loans, and mortgages. At the moment, many of them are getting help from some creditors and landlords who are allowing for partial or delayed payments. For instance, the analytics company Black Knight reports that 4.75 million homeowners—or 9% of all mortgages—have obtained forbearance arrangements with their lenders. Such relaxation of payment timing cannot last long.

* * *

States and local governments are having an especially bad time because revenues are taking huge hits with so many out of work and not paying as much in sales taxes nor gasoline and other excise taxes. On average, these make up about 35% of state revenues. Forty-three states also depend on income taxes for some of their revenue, with biggest impacts in California, New York, Illinois, New Jersey, and Massachusetts.

This translates into public employee layoffs without additional state aid from the federal government, and state budget cuts.

As Americans begin the slow return to those jobs that still exist, exactly how all this will play out is still highly speculative. As Mark Vitner, senior economist at Wells Fargo & Co., said last month: “In the Great Depression, the vast majority of job losses were permanent. Today the vast majority of job losses are temporary.” Nonetheless, he added, “I don’t think we get back to 100% for at least a year, 18 months, and we’re not going to need as many workers if we’re not back at 100%.” Other sources have gone so far as to say 42% of jobs may be permanently lost.

UPDATE: The Washington Post adds, A ‘misclassification error’ made the May unemployment rate look better than it is. Here’s what happened.

When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate.

The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported,” meaning the unemployment rate would be about 16.3 percent for May. But that would still be an improvement from an unemployment rate of about 19.7 percent for April, applying the same standards.

The Bureau of Labor Statistics, the agency that puts out the monthly jobs reports, said it was working to fix the problem.

“BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue,” said a note at the bottom of the Bureau of Labor Statistics report.

Economists say the BLS was trying to be as transparent as possible about how hard it is to collect real-time data during a pandemic. The BLS admitted that some people who should have been classified as “temporarily unemployed” during the shutdown were instead misclassified as employed but “absent” from work for “other reasons.”

Economists said the big takeaway is that it’s hard to collect real-time data during a pandemic and that while the unemployment rate remains high — likely more than 16 percent — it has declined a little from April.

Just to be clear, we still have Depression-level unemployment, nothing to celebrate.