Major Surprise in the US Unemployment Rate
Last Friday, the US Unemployment Rate and the NFP data positively surprised markets. What was initially priced in (20% unemployment rate and a further decline in the number of jobs) turned out to be incorrect. Instead of losing more jobs, the US reported an increase in the number of jobs created as well as a decrease in the unemployment rate.
Why Did the Number of Jobs Soar?
The NFP was the most anticipated release last week, as the markets closely watched the jobs data during the coronavirus pandemic. Before the health crisis, the initial jobless claims or the continuing claims barely made headlines – nowadays, they both represent top-tier economic data to watch.
To the surprise of everyone, the US May Non-Farm payrolls added +2.509 million jobs, instead of losing -8.33 million. The difference between the actual and forecast is so big that it is not compatible with the number of filling unemployment claims from a day earlier.
One explanation is that the PPP – Paycheck Protection Program is working better than expected and that firms find it easier to pay workers. Still, the difference between the actual and forecast data remains big.
After the markets closed for the week, a report indicated that there was a technical error in the data, and the numbers will be revised on the next release. Revisions are often, and this should not surprise anyone. However, the stock market soared on Friday, closing at much higher levels after the positive NFP surprise, and futures today point to more upside.
If the data was wrong, and a revision is due, why does the market not reflect that? Is a correction due?
As always, the market is always right. It needs a reason to rise or fall, and often economists and traders look for data to explain its moves. It may very well be that the market soared despite the bad data – optimism prevails.
However, it also may be that the United States jobs market is resilient. As everyone talked about the NFP, the Northern neighbor, Canada, released its May jobs data too. The unemployment rate fell in Canada too, and it created almost 300k new jobs on expectations of losing half a million.
Is there a technical glitch in Canada as well? Unlikely. What’s possible is that we’ve seen the bottom and there’s only one direction to go from there. Higher.