'Greatest miss in forecasting history': 4 economists and strategists react to Friday's surprising May jobs report

The May jobs report on Friday came as a surprise to many when it showed that the US economy added payrolls in the month and that the unemployment rate declined, signaling an earlier-than-expected rebound from the coronavirus pandemic.

The US economy gained 2.5 million jobs in May after a record 20.5 million loss in April, according to the Labor Department report. The unemployment rate ticked down to 13.3% from 14.7% in the previous month as temporary workers went back to their jobs.

Those numbers came as a shock to many economists the consensus forecast for the May report was that the US economy would lose 8 million jobs and see the unemployment rate spike to 19.5% .

"In the greatest miss in forecasting history, the May jobs report demonstrated that America is going back to work," David Donabedian, chief investment officer of CIBC Private Wealth Management, told Business Insider.

The May report is a sign that the US economy began to recover earlier than expected from sweeping lockdowns put in place in March to contain the spread of coronavirus. Throughout May, however, states began to slowly reopen their economies and at the end of the month, all 50 had relaxed at least some of their COVID-19 restrictions.

US stocks spiked following the unexpected release . President Donald Trump cheered the report on Twitter , calling it a "stunner" and saying, "It's joyous, let's call it what it is. The market was right."

Still, the report needs to be put in context while a positive sign, it is one month of data, not yet a trend of growth. In addition, the coronavirus pandemic has erased nearly 20 million jobs over the last two months and led to historically high unemployment.

That signals that while today's report is a step in the right direction, the US economy "is still in a deep recession," said Donabedian.

Here's what else four economists and strategists had to say about the surprising jobs report.

1. ING: "Simply astonishing"

BusinessInsider USA Images

Jason Kempin/Getty Images

"Apologies - this has taken a little longer to write having just fallen off my chair and broken it," ING chief international economist James Knightley wrote in a June 5 note. "This is one of the biggest economic data shocks in history, if not the biggest."

He continued: "This was so far away from what anyone was expecting. It is simply astonishing given the slow pace of reopening and the fact that more than 12 million people filed a new unemployment claim during the survey period."

The data "suggests the American economy can bounce back very vigorously and we all need to massively revise up our economic projections," Knightley wrote. Still, caution is warranted, he said, as the recovery could become bumpy.

"Most restaurants and retailers are unlikely to need as many staff as they had before the pandemic hit given social distancing limiting customer numbers at any given time," he said. In addition, some may not reopen at all.

2. Bank of America: "A major positive surprise"

BusinessInsider USA Images

AP Photo/Ted S. Warren

"The May jobs report delivered a major positive surprise as nonfarm payrolls rebounded," wrote Bank of America economists Michelle Meyer and Alexander Lin in a Friday note.

They continued: "While the labor market recovery started a month or two earlier than expected, therefore suggesting a V-shaped trajectory in the early stages of the recovery, it doesn't tell us about the ultimate shape of the recovery."

While today's report looked positive, there could be further pain ahead, according to the note. "We continue to remain concerned about the health of the economy after the initial jump higher from reopening," Lin and Meyer wrote. "The path ahead is still likely to be bumpy given risks posed from the virus and many millions of displaced workers."

"The unemployment rate is also underreporting the true pain in the labor market. There are many workers that are employed but not at work that could be misclassified."

4. Grant Thornton: "We really need a new way to talk about recessions and recoveries in a post-COVID world."

BusinessInsider USA Images

John Locher/AP Photo

"Job gains are welcome and suggest that the economy may have hit a trough in May, only two months after the onset of the crisis," Diane Swonk, chief economist at Grant Thornton, wrote in a Friday note.

Still, "losses remain significant," she said. "We really need a new way to talk about recessions and recoveries in a post-COVID world."

"Payroll jobs rose by a surprising 2.5 million as states started to reopen and small businesses leveraged the Payroll Protection Plan (PPP) to bring back workers from temporary furloughs," she said. "Much of the increase showed up as a reduction in the number of workers who said they were laid off temporarily."

She continued: "The question is how many of those workers will be able to keep their jobs as the economy struggles to reopen."

5. RSM: "Policy makers have no room to become complacent"

BusinessInsider USA Images

Reuters

"The impressive number of recalled workers implies three takeaways from the May employment report," said Joe Brusuelas, chief economist at RSM, in a Friday note.

They are:

The Paycheck Protection Program loans likely worked.
The notion that the $600 extra per week served as an incentive for those furloughed not to return to work was oversold.
The Pandemic Assistance Unemployment aid turned out to be a bridge, not a barrier, to normalization of the labor market.

"Given the elevated nature of both the unemployment rate and underemployment rate, policymakers have no room to become complacent and little margin for error in the formulation and implementation of policy," Brusuelas said.