WASHINGTON — A $3 trillion burst of economic assistance from the federal government has fueled a faster-than-expected rebound in hiring amid the coronavirus pandemic. That bounce suggests the economy is slowly healing, but it could also encourage Republican lawmakers to shut off some aid to people and companies prematurely, undermining that very recovery.
The surprise news that the economy added 2.5 million jobs in May, with unemployment dropping to 13.3 percent, emboldened congressional Republicans who have been reluctant to extend expensive jobless benefits and small-business loans. Many economists, in stark contrast, said the rebound was predicated on federal aid and pleaded with Congress not to relent on spending that has helped keep workers employed and bolstered consumer spending amid a swift and steep recession.
Republicans have acknowledged that some sort of legislation addressing the impact of the pandemic is likely. But the numbers released Friday, aides said, vindicated their reluctance to pursue another large, sweeping package. Instead, lawmakers are looking to a more limited measure that would include new spending and focus on reopening state economies.
“As Senate Republicans have made clear for weeks, future efforts must be laser-focused on helping schools reopen safely in the fall, helping American workers continue to get back on the job, and helping employers reopen and grow,” Senator Mitch McConnell of Kentucky, the majority leader, said in a statement.
In the details of the jobs report, and in other real-time economic data that has piled up in recent weeks, many economists saw evidence of existing federal assistance programs weaving a net to stop the economy from falling deeper into contraction.
More than half of the net job gains for May — 1.4 million — came in food and drinking establishments, which had shed more than six million jobs in the previous two months. Restaurants and bars have benefited from states lifting restrictions on economic activity, but in May, they saw a surge in funding from the $660 billion Paycheck Protection Program, which offers loans to small businesses that can be forgiven if workers are retained or rehired.
By mid-May, according to the Census Bureau, three-quarters of small businesses in the food and beverage sector reported receiving a loan from the Paycheck Protection Program, up from less than half in late April. Funding grew to similar levels for businesses in the health care industry, including dental offices, which added 245,000 jobs in May despite what appeared to be relatively little increase in the demand for dentist appointments during the virus outbreak.
“The best interpretation I have for this right now is that when we had the April report, virtually none of the stimulus had gone out by the reference week,” said Ernie Tedeschi, an economist at Evercore ISI in Washington. “Now we’ve had a full month of fiscal support. I think part of the recovery is due to that.”
Many Republicans took the jobs report as evidence that the economy was roaring back as states reopen and was unlikely to need another large dose of stimulus.
“Despite being told by experts and naysayers the opposite would happen, America’s unemployment rate fell and our economy is adding jobs by the millions,” said Senator Kevin Cramer, Republican of North Dakota. “There’s more work to be done, but the recovery begins today.”
The official Twitter account for Senate Republicans posted a triumphant video with the message “Weeee’re baaaack!!!” on Friday afternoon and a Senate Finance Committee spokesman said the numbers were a sign that Congress “should not rush to pass expensive legislation paid for with more debt.”
That victory lap has many economists worried that Congress could short-circuit the recovery by not renewing enhanced unemployment benefits and refilling aid to small businesses when it runs out.
“It is astonishing to me that the unemployment rate is still higher than it was at any point in the Great Recession and we’re talking about removing support,” said Martha Gimbel, manager of economic research at Schmidt Futures. “The fact that we’re willing to declare victory and head home is terrifying to me.”
Democrats, who have pushed for hundreds of billions of dollars in state and local aid in a bill the House passed last month, seized on the jobs report to urge more spending, pointing to it as the reason for the nascent rebound.
“The May jobs report shows that decisive action by Congress to support small businesses and workers can make a strong difference in our economy,” Speaker Nancy Pelosi of California said in a statement. “But with more than 100,000 Americans tragically dead, 21 million still out of work and state and local budgets collapsing, now is the worst possible moment to take our foot off the gas.”
The federal government’s impact can be seen clearly in the May jobs report, which reflects the steady flow of aid measures like additional unemployment insurance, small-business loans and one-time direct payments of up to $1,200 each to low- and middle-income individuals.
Practically none of the federal government’s coronavirus response funding had been disbursed as of the April jobs report’s survey week, but about $800 billion in unemployment insurance, small-business loans and stimulus payments had been sent out by the time the May data was fully collected, Mr. Tedeschi’s analysis showed. That could have helped increase hiring in hard-hit industries like retail, which posted a partial rebound.
Some of the job gains appear to have come from economies “reopening” across states like Texas and Georgia, which moved in early May to allow some patrons back to restaurants, retailers and other establishments that had been shuttered during the pandemic. But real-time economic data suggests loosened restrictions do not alone explain the hiring increase.
Small-business data from Homebase, which provides scheduling and time management software for small businesses, shows no direct link between when states lifted restrictions and how quickly activity has returned. Small-business hiring has increased across states regardless of their pace of reopening, though states that imposed lockdowns early fell to lower levels of employment before their rebounds began.
Republicans continued to urge restraint on another legislative response to the pandemic, but lawmakers acknowledged that they are likely to have to tweak programs in the coming weeks, including how to address the expiration of additional unemployment benefits in July. President Trump signed one such piece of legislation on Friday, allowing small businesses more time and flexibility to spend the funds allocated under the Paycheck Protection Program, and Republican senators have said they hope to put forward legislation that would ensure additional technical changes to the law.
Several economists said businesses would need more than tweaks — they will need additional money, as restaurants adjust to smaller crowds, movie theaters remain closed and hotels reduce capacity.
“Almost three months into the economic crisis, many small businesses are in a fragile state,” said Adam Ozimek, chief economist at Upwork. “We need more spending focused specifically on helping small businesses.”
One politically volatile factor that could restrain the recovery going forward is the dire condition of state and local governments, which shed employees rapidly in May, the Labor Department’s report showed.
Government employment over all fell by 585,000 positions in May, the report showed, with the bulk of that coming from local governments. Localities cut 487,000 jobs in May, with about 310,000 of those coming in education.
Those losses are expected to mount in coming months as states and local governments confront large shortfalls in tax revenues that could force them to cut deeply into school, public safety and other budgets, unless the federal government supplies aid to fill in the holes. In the recession following the 2008 financial crisis, state and local layoffs continued for years into the recovery and held back consumer spending and growth.
The Federal Reserve chair, Jerome H. Powell, has warned that state and local job losses could weigh on the economy’s eventual recovery.
“May marked the beginning of the long road back for the labor market,” Sophia Koropeckyj, managing director at Moody’s Analytics, wrote in an analysis following the report. Based on Moody’s projections, “the U.S. will not return to its pre-Covid-19 employment level until the end of 2022.”
One Republican who both celebrated the jobs numbers and expressed an openness to more congressional action was Mr. Trump. In a Rose Garden speech where he declared the economy was taking off like “a rocket ship,” he praised the earlier economic rescue packages and suggested more could be on the way, though not necessarily the type of direct aid that economists say will be needed.
“We’re set up to do more if we want,” Mr. Trump said, adding he would favor tax cuts for companies and investors and a tax deduction for business meals meant to help restaurants. Those proposals have long been floated by the White House, but so far, Congress has shown little interest in embracing them.