By The Washington Post · Taylor Telford, Thomas Heath · BUSINESS, US-GLOBAL-MARKETS
The Dow Jones industrial average spiked more than 2.7% after the Labor Department reported May unemployment fell to 13.3% - a far cry from the 19.5% analysts had forecast and a sharp improvement from the 14.7% set in April - as states incrementally reopened their economies after months of pandemic-fueled shutdowns and some Americans got back to work.
More than 2.5 million jobs were added to non-farm payrolls, data show. About half the gains were in restaurants and bars, a sector of the economy that has been among the hardest-hit as social distancing restrictions upended normal business.
"We may well have seen the worst of the historically horrific covid-19 related economic downturn," Mark Hamrick, senior economic analyst at Bankrate.com, said in comments emailed to The Post. "We still need to step back and remember that the unemployment rate remains higher than the peak during the financial crisis and great recession."
The Standard & Poor's 500 index swelled 2% at the open, while the tech-centric Nasdaq composite advanced 0.8%.
Despite protests raging on across the country over the death of George Floyd and the worst economic crisis since the Great Depression, investor optimism had risen after Thursday's weekly unemployment claims also came in below estimates - although at 1.9 million the losses still show staggering damage to the economy.
Asian markets closed up and European markets were trending higher in midday trading. The rally followed the European Central Bank's announcement on Thursday that it would add $676 billion (600 euros) to its coronavirus rescue plan, making the total package worth more than $1.5 trillion. Germany, one of Europe's most powerful economic engines, also announced a fresh stimulus package Thursday amid rising unemployment.
"There are a number of reasons to be cautious in this market but none are clearly as compelling as the grand economic reopening and authorities everywhere pumping out cash like it's going out of fashion," Craig Erlam, an analyst with OANDA, wrote in commentary Friday. "This is purely a stimulus and momentum trade and it's not running shy of either."
Positive news is filtering through the economy. Personal incomes rose 10.5%, thanks largely to federal stimulus checks. First-time unemployment filings have leveled off. The housing market is on the rise, helped by record-low interest rates. Private payrolls shed 2.76 million jobs in May, ADP reported Wednesday, well below the 8.75 million that economists surveyed by Dow Jones had expected.
Still, the magnitude of economic damage from the pandemic suggest a V-shaped recovery is still a reach. A Monday report from the Congressional Budget Office estimated that fallout from the coronavirus crisis will shrink the size of the U.S. economy by roughly $8 trillion over the next decade. That amounts to a 3% decline in U.S. gross domestic product compared to its initial estimate.
Oil prices soared to their highest levels in three months as investors looked toward the meeting of OPEC and its allies this weekend, where the organization is expected to agree to further production cuts while the world gets back in motion. Brent crude, the international oil benchmark, rose nearly 3.9% to trade at $41.54 per barrel. West Texas Intermediate crude, the U.S. oil benchmark, climbed more than 3% to trade at $38.55 per barrel.