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June 8, 2020, 10:14 a.m. EDT

Surprising May jobs report hinders push for another big aid package, analysts say

‘There is a lessening of the crisis mentality forcing Republicans to act’

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By Victor Reklaitis, MarketWatch


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This barbershop in Chesterton, Ind., reopened for business last month.

The better-than-expected U.S. jobs report for May likely will hamper the push for another big coronavirus relief package, but a divided Washington probably still will deliver an additional aid measure in July, according to analysts.

The surprising report on Friday showed the U.S. economy added 2.5 million jobs last month as the unemployment rate fell to 13.3% from 14.7%. Economists polled by MarketWatch had expected a loss of 7.25 million jobs and an unemployment rate of 19%.

“While 13.3% unemployment is nothing to write home about historically, there is some merit to the argument that a better-than-expected number further reduces the sense of urgency on Capitol Hill for a fourth stimulus bill and also bolsters Republicans’ position that a comparatively small-scale package in the [$1 trillion] range is all that’s needed from here (versus the Democrats’ [$3 trillion] HEROES Act),” said Henrietta Treyz, director of economic policy at Veda Partners, in an email to MarketWatch.

Related: ‘The biggest payroll surprise in history’ — economists react to May jobs report

And read: Surprising May gain in jobs dents view that Fed will stay at zero for years

The Bureau of Labor Statistics conceded on Friday that the reported unemployment rate for May would have been three percentage points higher if household data had been properly recorded.

“There is a lessening of the crisis mentality forcing Republicans to act,” Ben Koltun, a senior research analyst at Beacon Policy Advisors, told MarketWatch in an email. “The GOP would have been hard pressed to say they weren’t going to support major legislation when unemployment is above 20 percent, rivaling the depths of the Great Depression. With the stock market nearly recovered and businesses and employment on the upswing, the necessity for quick action dissipates.”

U.S. stocks /zigman2/quotes/210599714/realtime SPX +0.06% /zigman2/quotes/210598065/realtime DJIA +0.17% have rallied from their March lows, and the broad S&P 500 index surged on Friday to close within 5.7% of its February peak, while the tech-heavy Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.87% scored an intraday record. And U.S. stocks were again on the ise Monday morning.

“Still, a Phase Four deal is likely at the end of July,” Koltun added. “Republicans don’t want the unemployment numbers and economic recovery to plateau. So they will still come to the table with Democrats.”

The next package has been called Washington’s “Phase 4” response to the coronavirus crisis as it would follow April’s $484 billion “Phase 3.5” measure, which came after the $2.2 trillion CARES Act that passed in late March. Before that, Washington delivered a mid-March package costing an estimated $192 billion, and an $8 billion measure that was finalized in early March.

Related: How Congress is spending trillions in response to the coronavirus crisis — in one chart

Koltun also noted that Friday’s encouraging report can be attributed to the government’s intervention so far, such as the Paycheck Protection Program and transfers to buoy personal income.

Treyz said the “national conversation will drift back to the U.S. economy, but if anything delays a stimulus IV bill from here, it won’t be just the 13.3% unemployment number.”

“There are two other developments that play a role in reducing our odds of a stimulus bill happening in July from their previous near-100% range to [about 80%] today,” she said. “We’ve seen a significant change in China–Hong Kong relations, which caused a substantial outcry amongst lawmakers in Washington, and we’ve seen the nation breakout into protests over racial inequality in the wake of the killing of George Floyd.”

See: Revoking Hong Kong’s special status is Trump’s ‘nuclear option,’ analysts warn

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