What a jobs number! The Bureau of Labor Statistics (BLS) announced that the economy added 2.5 million jobs in May—the biggest monthly increase ever and far better than forecasts had anticipated. Equity markets soared in response, presumably taking this as evidence of the V-shaped recovery that would put the horrible COVID experience behind us.

At Friday’s close, the S&P 500 had leapt up to within 6% of its February high. A significant spike given that in mid-March the index had been down almost 35%. Does this mean that we are nearly finished with this painful episode we’ve been enduring?

Sadly, no. Significant economic difficulties still lie ahead. To see why, we can break this into two parts: What will it take to have a full recovery? And what do we make of today’s job numbers?

To really put the economic crises induced by COVID behind us, we need three things:

1. To beat the disease
2. To restore consumer demand and economic activity
3. To fill the holes left by this episode

In response to the first point, we have neither a vaccine nor a treatment. Moreover, there are legitimate concerns about a second wave.

On restoring demand and economic activity, the ravingly optimistic view hopes that an economy that was switched off by government choice can be switched right back on again (V-shaped recovery). The realist view: That is highly unlikely. First, there is excellent data that show that consumers have remained cautious, even when states have announced a reopening. If for no other reason, this could be because tens of millions of them lost their jobs and worry about what will happen when unemployment benefits run out.

Second, to have all these economic activities resume, they need to be allowed. To be profitable, restaurants and bars need to be packed, as do airlines, sporting events, and conventions. Not only is this not currently permitted—social distancing—it is not clear that these businesses can survive at reduced capacity. A restaurant that is never more than one third full usually does not last long.

Third, it is not just domestic demand that matters. Exports made up just under 12% of US GDP in 2019. For that demand to be restored, other countries around the world need to recover, too. The just-released April US export figure was down 20.5% from March and a cumulative 28.5% from February.

Even if we had our health solution, and we had a restoration of consumer confidence and demand, there would still be a hole to fill. To understand this, think of a company that was planning on $12 million in revenue and $10 million in costs during 2020. Then, imagine it shuts down for three months, but still has to pay its costs. Now it has $9 million in revenue and $10 million in costs. In this example, the $3 million in missing revenue is the hole. There are ways to address this—the company could have a forgivable loan through the Paycheck Protection Program (PPP); or it could have terrific sales months after reopening that make up for the gap. But the hole has to somehow be filled. Otherwise, the business may go bankrupt. That then expands the size of the hole for others, as the defunct company no longer demands anything from its suppliers.

Extrapolating further, the longer the economy is slowed down, the bigger the hole’s expansion. To that point, the Congressional Budget Office just estimated that, through fiscal 2030, the hole will be $7.9 trillion.

So the economic outlook is not back to where it was in February. Nor did today’s employment release say that it was. While it showed a large increase in jobs, and was dramatically better than forecasters had predicted, there are several cautions:

• There is enormous uncertainty even in the collection of data. The BLS notes that normal in-person interviews were impossible, given the pandemic, and the response rate to the survey was 67%—about 15 percentage points lower than normal. The findings are strange: We have never before seen a mismatch like this between insured unemployment and the unemployment rate.
• Unprecedented drops in employment can bring equally unprecedented numbers when employment bounces off the bottom. 2.5 million is large, but the declines leading to it were substantially larger.
• The unemployment rate was estimated at 13.3% in May. BLS writes that, correcting for some misclassification, the real number should be about 3 percentage points higher. That means measured unemployment is actually around 16%. Not only is it not an economy restored, it is substantially worse than the worst of the global financial crisis.
• It’s worth noting that the government paid for these numbers. Programs such as the small-business PPP emphasized maintaining employment. And, they were time-limited. The effect should be to artificially boost employment at places like restaurants and bars. In fact, employment in food services and drinking places accounted for 1.4 million jobs in May, representing more than half the gain. However, that will not continue if the government programs—and the recipients of those programs—expire. Further, these numbers likely reduce the odds of a generous new stimulus package.

There will come a time when we put this economic crisis behind us. But despite today’s jobs numbers, we are not there yet.