Economic Report: Millions of additional job losses in May could push U.S. unemployment rate up to 20%

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Another 7.25 million U.S. jobs may have disappeared in May, after the loss of more than 20 million in April due to the coronavirus pandemic, but the partial reopening of businesses in the past few weeks suggests the damage to the economy may be mostly done for now.

Here’s what to watch in Friday’s May employment report.

See: Marketwatch’s Coronavirus Economic Recovery Tracker.

More job destruction

The U.S. likely shed around 7.25 million jobs in May, according to the economists polled by MarketWatch. The government previously reported a record-shattering loss of 20.5 million jobs a month earlier when most of the economy was shut down as states and the federal government sought to contain the spread of COVID-19.

The May employment report is built around a survey of households and businesses that took place in the second week of the month, making it harder to gauge the full scope of the damage to the labor market. Many states began to reopen their economies around then and up to several million people may have returned to work in the second half of May.

A separate employment report compiled by ADP, a company that processes millions of paychecks, showed much smaller job losses last month at “just” 2.76 million private-sector jobs.

The ADP figures often diverge month-to-month from the U.S. Labor Department’s official report, however and that could be the case again in May.

Read:Jobless claims climb another 1.88 million, but unemployment appears to be peaking

A 20% unemployment rate?

The official unemployment rate in April was put at 14.7%, easily a new modern-day record. Yet the Labor Department said the rate would have been almost 20% if households had answered the survey correctly.

Respondents who viewed themselves as “employed but absent from work” were not included in the official jobless rate even though the coronavirus almost certainly left them without a job. Nor do they have a guarantee there will be a job to which they can return.

Economists predict the official unemployment rate will climb to 19% in May, the MarketWatch survey shows, though some think it could approach as high as 25% unofficially.

Whatever the “real” unemployment rate, up to one-third of all Americans may have been thrown out of work at some time in the past two months.

Read:Manufacturers show faint signs of revival in May as economy slowly reopens

Also:Service side of U.S. economy breaths signs of life in May, ISM finds

‘Temporary’ layoffs

Nearly 88% of the 20.5 million employees who described themselves as out of work in April believed their unemployment status would be temporary.

That’s a good sign in the sense that most people think they’ll get their old jobs back, but if they start to become more pessimistic, the share of workers classifying themselves as temporarily without a job would decline. Such a dropoff would suggest another hill to climb for a U.S. economy arguably digging out of its biggest hole ever.

Funky wage growth

In an odd but unsurprising quirk, the average hourly wage paid to American workers soared a record 4.7% in April. That’s because far more lower-paid workers lost their jobs in industries such as retail and hospitality than employees in higher-paying lines of work, increasing the average.

Wages likely rose sharply again in May because of the same phenomenon. The MarketWatch estimate projects a 1.5% increase.

Wage growth will decline as more workers return to their jobs, but it could take awhile if people continue to social distance since so many Americans work in the hospitality industry.

In any case, economists say it’s probably best to ignore wage trends for now.

“Given that this distortion is likely to persist for at least a few months, earnings data will unfortunately be an unreliable gauge for interpreting wage growth,” economists Kevin Cummings and Michelle Girard at NatWest Markets wrote.