You’ll Need a Decoder Ring to Figure Out the U.S. Jobs Numbers

There’s no way around it: Thursday’s U.S. labor reports will be a mess.

While the June jobs data and weekly unemployment claims are expected to show further improvement in a hammered market, the actual trend may not be immediately clear when the Labor Department issues the reports at 8:30 a.m. in Washington. What’s more, the numbers could again be the subject ofconfusion and debate in the hours and days that follow.

That’s because some of the figures have been beset by data-quality issues, particularly themisclassification of out-of-work Americans as employed. The problem has caused the official unemployment rate to understate the degree of joblessness in America during the pandemic, and a fix would make comparisons between May and June difficult — anespecially sticky situation if the rate rises solely because unemployed people are finally classified correctly.

Understanding the numbers is more than just an exercise for economists, whoblew it last time with projections of 7.5 million job losses in May, before the government reported a gain of 2.5 million.

The potential end of applications for small-business aid risks spurring a new wave of layoffs in the coming months, and the extra $600 a week in federal unemployment benefits is set to end in late July. President Donald Trump’s reelection bid increasinglyhinges on the economy — his main advantage over Democratic challenger Joe Biden in polls.

Meanwhile, the nascent recovery — from a recession that began in February — is under a growing threat from a surging coronavirus that’s causing cities and states to pause reopenings of restaurants and other businesses.

“We’ve got big forces at work here,” said James Sweeney, chief economist at Credit Suisse Group AG. In addition to the return of workers and the misclassification, “more recently you have the new wave of infections slowing the return. So this is tricky.”

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The monthly report — released a day earlier than usual because of the Independence Day holiday — is forecast to show employers added 3.1 million workers to payrolls in June, a second month of record gains, while the jobless rate is expected to drop to 12.5% from 13.3%. That’s still well above the half-century low of 3.5% from February.

Similarly, the number of Americans applying for unemployment benefits in state programs likely fell for a 13th straight week, to 1.35 million, economists estimated. Even so, that’s six times as high as before the pandemic.

Misclassified Workers

The Bureau of Labor Statistics, which compiles and publishes the national employment report, has struggled to overcome data-collection issues. Millions of workers are estimated to have been misclassified as employed but absent from their jobs due to “other reasons” rather than being counted as unemployed on temporary layoff.

The BLS has since taken additional steps to help survey-takers classify workers correctly, but solving this problem may create another: If the unemployed are counted properly, it could very well result in an increase in the official rate from the previous month — even if the reality is that joblessness fell in June.

There are several moving parts for the unemployment rate, said Lydia Boussour, senior U.S. economist at Oxford Economics. “We do think that this month we will see a bit of a stronger correction in that misclassification issue, so we are expecting to see a multi-million drop in the number of employed but not at work.”

What Bloomberg’s Economists Say

“The unemployment rate is projected to have declined in June, though problems correctly classifying some workers introduces significant uncertainty.”

— Yelena Shulyatyeva, Andrew Husby and Eliza Winger

While labor-market improvement in June could very well be real, American jobs face fresh threats in coming months.

The Paycheck Protection Program, a nearly $700 billion federal fund for companies to rehire workers and pay other expenses, was slated to close for applications on June 30, though lawmakers were attempting late Tuesday toextend the deadline. Many small firms arealready mulling cuts to payrolls as their funds wind down, or wondering what happens when their cash runs out and sales are still down.

Rehiring, Cutting

One such owner is Lenore Estrada, co-founder of Three Babes Bakeshop in San Francisco. The caterer and seller of organic, seasonal pies rehired 11 of its 26 workers thanks to an initial infusion of PPP funds but anticipates needing to cut expenses without another lifeline by September.

“The economic model that you were basing your business on previously just doesn’t work anymore,” she said. “It’s going to be a long road to recovery.”

The funding is already insufficient for some firms. About one in five companies that received PPP funds terminated at least one employee in May and June, and half rehired those workers in that period, according to data from payroll and human-resources firm Gusto.

Even though policy makers tweaked the PPP program in June, including extending the time for companies to use their funds through the end of the year, “it may not be enough,” said Daniel Sternberg, head of data science at Gusto, which works with about 100,000 small businesses.

Meanwhile, economic activity in Texas, Arizona, and Florida has flat-lined or even started to decline from an earlier period of improvement, as virus cases and hospitalizations jumped in recent weeks, according to a Jefferies analysis of Homebase and Google data.

And that could mean more uncertainty for next month’s report.

— With assistance by Chris Middleton

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