Unpacking Friday’s surprising jobs report: It’s hard to get the data right in a crisis.

Friday’s jobs report, putting the official unemployment rate at 13.3% and showing a jobs gain of 25 million, was that rare bit of good economic news during the pandemic. Too good to be true? Well, as we wrote Friday, the Bureau of Labor Statistics added this caution in its discussion of methodology.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses. [Emphasis added.]

Like everything else during the pandemic lockdown, getting the data right is hard.

An even more skeptical take – following a lengthy exposition – is laid out by James Hamilton at Econbrowser. The analysis goes beyond our expertise but some readers may find it interesting. Here’s his bottom line:

Summary. The headline unemployment rate in May likely understated the true unemployment rate by 1.6% as a result of overestimating the number of people who dropped out of the labor force, by an additional 0.7% as a result of repeated-interview bias, 1.2% as a result of missed individuals, and 3% as a result of people who were misclassified as employed,

13.3 + 1.6 + 0.7 + 1.2 + 3 = 19.8,

leading to the conclusion that the unemployment rate in May was more like 19.8% than the reported 13.3%.

None of this should be construed to mean that the improvement in May was not real. We see a dramatic improvement not just in the household survey numbers, but also in the establishment-based estimates. And, although still very high, the number of new and continuing claims for unemployment compensation dropped by 2.6 million between April 25 and May 23. So the good news is quite real.

So, even if the unemployment rate is 6.5 percentage points higher than the official rate, it’s still a positive report.

Economist Tyler Cowen also focuses on the positive and offers some explanation.

My tentative hypothesis is that “matching” is more important than I had thought (and I already thought it was quite important, relative to other macro commentators).  One feature of the current layoffs and rehirings is that the ties between workers and firms apparently were not so severed in the first place.  For most sectors (cruise ships aside, etc.), no “rematches” were required, and so rehirings were accomplished very quickly.  As demand (partially) returned, employers wanted at least some of the old workers back, and workers wanted their old employers back, and then it happened.  “Figuring out where I belong” did not slow down the process very much.

That is good news for the remainder of the recovery, provided the recovery happens soon, and it is at least one factor (not necessarily decisive, of course) militating in favor of a speedier reopening.

Public sector employment may face different challenges, reports the Associated Press.

Jobs with state and city governments are usually a source of stability in the U.S. economy, but the financial devastation wrought by the coronavirus pandemic has forced cuts that will reduce public services — from schools to trash pickup.

Even as the U.S. added some jobs in May, the number of people employed by federal, state and local governments dropped by 585,000. The overall job losses among public workers have reached more than 1.5 million since March, according to seasonally adjusted federal jobs data released Friday. The number of government employees is now the lowest it’s been since 2001, and most of the cuts are at the local level…

Tax revenue from businesses walloped by coronavirus restrictions has plummeted, forcing cuts by cities and states that rely on that money. It’s likely to get worse in the coming months unless Congress delivers additional aid to states and cities.

Several states are projecting tax revenue will be down 20% or more for the fiscal year starting next month..

For a good examination of unemployment claims by sector in our state, see this post by Washington Research Council economist Kriss Sjoblom.