Investors received a pleasant surprise in the May employment report, which showed the US adding 2.5 million jobs versus an expected 7.5 million loss. This brings the official unemployment rate to 13.3% versus 14.7% in April. The Bureau of Labor Statistics added a note to the latest release concerning the difficulty of measuring unemployed workers. We will spare you the details, but the bottom line is the actual unemployment rate was likely closer to 20% in April and fell to 16% in May. The pertinent point is the rate improved month over month. Weekly jobless claims continue to come in at an elevated level, with a total of 42.6 million workers seeking unemployment benefits since the start of the economic shutdown. As we noted last month, many of the job losses have been classified as temporary, meaning workers are likely to be rehired. While it is too early to give the all-clear signal, returning workers is a positive sign that the recovery could be swifter than in a typical recession.

While the employment report gave a confidence boost to the markets on Friday, there are a few key reports we will be watching for further signs of recovery. After accounting for the supplier delivery components, the latest ISM survey numbers are in the upper 30’s signaling a continuing contraction within both the manufacturing and service industries. We will have a better gauge of business activity once supply chains return to normal. The latest income and spending reports show that Americans saved at an unprecedented level of 33%. Additional savings are prudent, but we need to see spending pick up considerably to return to growth. Lastly, we are watching international trade flows, which are down 35% from January. Foreign sales account for roughly 42% of S&P 500 company sales and will need to improve significantly to return to 2019 earnings.

Bottom Line: The May employment report gave investors hope that the recovery is underway. A steepening yield curve and surging equity markets confirmed this confidence. We are cautiously optimistic that the economy will have a quicker than average recovery, given the nature of the crisis and the tremendous governmental support. We will be watching carefully in the coming weeks and months as additional economic data becomes available.