2.5M jobs added in May, unemployment slides to 13.3%

Matt Luzzetti, Deutsche Bank Chief U.S. Economist joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to break down the May jobs report.

Video transcript

ALEXIS CHRISTOFOROUS: I Want to bring in Matthew Luzzetti now. He is Chief US Economist at Deutsche Bank. Matt, good to see you. Perhaps this shouldn't be as much of a surprise to us, right? Economies started to open to some degree in the month of May. So the fact that we didn't lose as many jobs and actually added jobs maybe isn't as much of a surprise. And do you think that perhaps that V-shaped recovery that so many economists were saying was not going to happen just about a week ago, maybe it can after all?

MATTHEW LUZZETTI: Thanks for having me. I think it was a surprise given kind of all the other data that we have. So we knew between April and May you saw a lot of people filing for jobless claims. We're still seeing almost 2 million people on a weekly basis file for unemployment insurance. And actually between April and May, continuing jobless claims-- so the stock of people that are receiving unemployment benefits-- continued to increase. ADP earlier this week charged showed a more than 2 million decline in employment.

So relative to kind of all these other data points we have, I think it absolutely was surprising. But as you noted, it does-- you know, at this point it's a little uncertain whether it's bringing forward some of the benefits that we may see in June-July. We still think all the other data points we see are showing an economy that remains at kind of depressed levels, but there is some optimism that comes out of this, and there's some optimism that perhaps there are paths where the economy may not be as weak going forward in the next few months. The unemployment rate may not stay as high as we thought, but it's still incredibly uncertain at this point.

ALEXIS CHRISTOFOROUS: Where do you see the unemployment rate by the end of the year? We were talking earlier with some guests. Moody's Analytics putting the unemployment rate at 8.5%. A lot of folks were saying we're going to see double-digit unemployment straight through next year. What are your thoughts now, especially coming off of this latest jobs report?

MATTHEW LUZZETTI: We had been in double digits through the end of the year, you know, between 10% and 11% in Q4. Data like this where we were expecting the unemployment rate to rise to 18% but it actually fell to 13.3%, in that type of a world, it essentially causes some reassessment.

But I think we really need to see how the next few months go because, as I noted, you are seeing all these other indicators that are showing a much slower improvement than what we saw in today's jobs report. And so it would be good to see some confirming evidence in all the other data that we watch. But it does suggest that maybe there is some downside risk, meaning that the unemployment rate could fall more than we anticipate this year.

BRIAN SOZZI: Matt, what is the-- what's the real state of the US economy? Because I see the U-- the headline unemployment rate fell 13.3%, but I look at the U6 unemployment rate at 21.2%. Not much improvement month over month. What should investors-- what should just macro economists-- what's the right number here to use?

MATTHEW LUZZETTI: Yeah, from a labor-market perspective, these broader measures-- U6-- I think give you a more accurate picture. The BLS also said due to classification issues the unemployment rate could have been three percentage points higher than what was actually reported.

And so we don't want to confuse too much, which is this report was better than expected. It showed an improvement in the labor market versus a further deterioration. But the level of activity, the level of the labor market is still severely depressed. You know, even before last month, a 13.3% unemployment rate would have been the highest that we'd seen in the post-World War era.

So things are a bit better. They are not as bad as feared, but the actual level of activity is still very depressed. Our trackers for GDP growth show 10% declines year over year, and the unemployment rate still is at post-World War highs. So there is some reason for potentially some optimism going forward, but we should be very, I think, realistic about the level of activity being significantly depressed still.

ALEXIS CHRISTOFOROUS: All right, Matthew Luzzetti, chief US economist at Deutsche Bank, thanks for being with us this Friday morning. Have a great weekend.

MATTHEW LUZZETTI: Thanks for having me.