In a huge upside surprise the U.S. economy added 2.5 million jobs in May – consensus estimates were looking at a potential decline in employment of between 4 to 8 million jobs, according to a recent report from Dodge Data & Analytics. May’s net addition to employment follows declines of 1.4 million in March and 20.7 million in April, according to the report.

From a construction standpoint, the sector added 464,000 jobs back following a decline of 995,000 in April. Employment in building construction rose by 105,000, while heavy and civil engineering jobs increased by 33,500, according to the report. Specialty trade contractors also added 325,000 jobs. The unemployment rate fell from 14.7% to 13.3%, meanwhile, private sector jobs increased by 3.1 million, according to the report. Government employment was down by 585,000.

Dodge Data & Analytics claims that May will have been the low point during this recession and that the recovery phase began in June. The company also highlighted the increase in hiring as more states are reopening as COVID-19 spikes lessen. The additional hires, according to the report, will aid in the economy’s recovery. However, it is expected to be a long and slow process.

Employment is down close to 20 million from its February level, according to the report. With the massive negative numbers in April, there was bound to be an immediate jump in employment as people started returning to work. That jump has come sooner than expected, but growth in the second half of the year will nevertheless be slow going. Even by year-end, the unemployment rate will be stubbornly high – potentially still close to 9% – compared to the 3.5% rate before the COVID-19 crisis began.

Federal Outlook

The coronavirus and the measures taken to protect public health have induced declines in economic activity as well as a surge in job loss, according to the Federal Reserve.

“Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” a portion of the Federal Reserve’s press release reads.

The Federal Open Market Committee, according to the Federal Reserve, decided to maintain the target range for the federal funds rate at 0-0.25%. The Committee also expects to maintain this target range until it is confident the economy is on track to achieve its maximum employment and price stability goals. According to the release, the Committee will monitor the implications of incoming information for the economic outlook, which includes information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy.

“In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2% inflation objective,” a portion of the release reads.

The assessment will take the following into account: measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Federal Reserve plans to increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities in order to support the flow of credit to households and businesses. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust.

The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on June 10, 2020:

  • The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on required and excess reserve balances at 0.10%, effective June 11, 2020.
  • As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with its domestic policy directive.

“Effective June 11, 2020, the Federal Open Market Committee directs the Desk to:

  1. Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0-0.25%.
  2. Increase the System Open Market Account holdings of Treasury securities, agency mortgage-backed securities (MBS), and agency commercial mortgage-backed securities (CMBS) at least at the current pace to sustain smooth functioning of markets for these securities, thereby fostering effective transmission of monetary policy to broader financial conditions.
  3. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets.
  4. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 % and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair.
  5. Roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities and reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in agency MBS and all principal payments from holdings of agency CMBS in agency CMBS.
  6. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons.
  7. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.”