Market Watch: Over/under for June jobs report is ... 3 million?

What kind of surprise can we expect from Thursday’s jobs report for June? A month ago, we got a hugely pleasant surprise for the May report — so surprising that it took a day of tamping down conspiracy theories about the numbers before people accepted it. Market Watch predicts another pleasant surprise this week from the June report, and based on metrics seen thus far, that seems like a safe bet.

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But it’s still a gamble, and expectations might be getting too high after May’s rebound:

Investors already got fooled once after several million people returned to work in May. They might get fooled again in June, but they worry the next surprise won’t be so pleasant.

Wall Street DJIA, -2.83% predicts the U.S. regained an additional 3 million jobs in June, with forecasts going as high as 8 million. The economy added back 2.7 million jobs in May, confounding expectations for another big decline.

The unemployment rate, meanwhile, is seen falling again to 12% from 13.3% when the Labor Department reports the monthly data next Thursday, a day earlier than usual because of the July Fourth celebrated on Friday this year.

The veneer of optimism about the June forecast, however, is unable to hide festering doubts.

What kind of doubts? For one thing, weekly initial jobless claims still run at madman levels of 1.5 million per week. The number of people getting benefits has dropped significantly, finally getting below 20 million for the first time since the meltdown began. That’s not a sign of benefits running out — they are in place until next month, at least — so it shows people are returning to work. Unfortunately, it also shows people losing jobs, too, but just at a somewhat slower pace.

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The next biggest worry relates more to the July report. The impact of the re-closings of parts of state economies with new COVID-19 spikes has yet to be seen.  Unemployment surveys key on status as of the second week of a month, so the actions taken in Texas, Florida, and some other states over the past few days won’t impact the June report. It might get seen first in the jobless-claims report this week, but certainly in the report a week from Thursday.

Still, other signs look strong. Durable goods orders rose by 15.8% in May, which would prompt rehiring or unforloughing to service. New-house sales rose by a similar amount in May too, a good sign that people feel ready to invest in their future and have the money to do it. Plus, yesterday’s report on consumer spending indicated more directly that the main engine of the American economy has begun to rev up again:

American consumers increased their spending by a record 8.2% in May, partly erasing huge plunges the previous two months, against the backdrop of an economy that’s likely shrinking by its steepest pace on record this quarter.

Last month’s rebound in consumer spending followed record spending drops of 6.6% in March and 12.6% in April, when the viral pandemic shuttered businesses, forced millions of layoffs and sent the economy into a recession. Since then, many businesses have reopened, drawing consumers back into shops and restaurants and restoring some lost jobs.

Friday’s Commerce Department report showed that Americans stepped up their spending in May despite a 4.2% decline in personal income, which had soared by 10.8% the previous month. Income had jumped in April on the strength of billions of dollars in support through government payments in the form of unemployment aid as well as one-time $1,200 stimulus checks. In May, those stimulus checks were no longer counted as income for most people.

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There’s a bit to unpack in that report. Consumer spending not just provides economic activity, it also indicates job activity. People don’t increase spending when they’re unemployed. Not only does the spending create jobs, it indicates a trend of people getting back to work.

The jump in income in April and drop in May meant something else, too. By and large, the people who lost their jobs first were lower income workers — retail, restaurant, pub workers whose businesses were forced to close. Average income among the employed rose sharply as a result, and then dropped again when lower-income workers returned to work. Given the problems in issuing the stimulus checks, and that many Americans received them in May rather than April, I’d guess that was more the dynamic than whether we counted stimulus checks as income.

With all this in mind, don’t be surprised to see another blockbuster report on Thursday for June, when most of the lights had switched to green. It’s the next jobs report that may hold some unpleasant surprises.

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