But though the economy showed us proof of its dynamism, shedding more than 100,000 jobs in the beleaguered manufacturing sector but adding 70,000 in the service sector, it's still a very weak economy. The National Association of Purchasing Managers' index of manufacturing activity fell another point to 42.1 in May, indicating that manufacturing is not only still shrinking after a year in the dumps, it's shrinking faster as time goes on.
In a TIME.com Q&A, TIME senior economics reporter Bernie Baumohl goes over the numbers and takes a look down the road — including how this latest batch of news will play at the Fed's next meeting at the end of June.
TIME.com: Just a few days ago we were talking about unemployment ticking up to 4.7 or 4.8 in May. What happened?
Bernie Baumohl: Don't place too much importance on the fact that unemployment statistically went back down in May — a lot of that has to do with the fact the actual labor force — the proportion of the population 16 years of age and older who are either working or looking for work — shrank by nearly 500,000 people last month. The trend in the unemployment rate is still up since September's 3.9 percent, and this doesn't exactly reverse that.
But what's interesting — and encouraging — is that this does show how incredibly dynamic the U.S. economy is, and unlike any other economy in the world.
For unemployment to drop during the weakest quarter for the GDP in a decade shows that while a lot people are losing their jobs, they're able to find new jobs relatively easily. Challenger, Gray and Christmas released a survey recently that said that in the first quarter of this year, job downtime — the amount of time it takes for a laid-off person to find another job — was the shortest in 15 years. And for workers 50 and over — the ones most likely to be looking for jobs in management, not the prototypical hamburger-flipper — the downtime was even shorter. That's incredible.
So what's the overall economic picture right now for this quarter?
The job market is still very weak. Manufacturing is still in a deepening recession, which indicates that capital investment by companies has yet to show any signs of life — and won't anytime soon. And even including the statistical adjustment of the March numbers we've still lost payroll jobs for the last two months. So nothing much has changed — the economy is still weak, and it's very likely that this quarter we'll see a contraction in GDP. The danger of a recession, albeit a short one, is still real, and it remains up to consumers to keep spending to keep the economy from slowing too much for too long.
What's this mean for the Fed?
The statistical drop in unemployment does lessen somewhat the Fed's fears about the psychological effect of rising unemployment on consumers. Based on this report, I'd say the Fed is likely to cut rates on June 27 by only 25 basis points instead of the 50 points we've gotten accustomed to.
The construction sector is still doing well, possibly as a result of the strength of the housing market this spring. Consumer confidence has turned around. And people that are losing their jobs seem to be finding new ones. So these reports weren't without a positive aspect. But things are still very weak, and we certainly aren't getting any new signs that things will turn around any sooner than the end of this year.