The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Employment growth and wage growth moderated in April. Nonfarm payroll employment rose by 88,000 in April, following a revised 177,000 gain in March and a 90,000 increase in February. April's payroll gain was below the consensus projection for a 100,000 increase in payroll jobs. March's payroll gain was revised down 3,000 from the initial 180,000 increase and February was revised down 23,000 from the previous estimate of a 113,000 advance. For March and February combined, the net revision was down 26,000.
Nonfarm payroll employment on a year-on-year basis was unchanged at up 1.4 percent in April from March.
Within the payroll survey, strength was in the service-providing industries as good-producing employment declined. Construction fell 11,000 after a 50,000 partial rebound in March. Manufacturing decreased 19,000, following an 18,000 drop in March. Natural resources & mining edged up 2,000 in April, following a 4,000 rise the month before. Overall service-providing industries rose a moderate 116,000 in April, following a 141,000 gain in March. Gains were led by government, up 25,000, and by professional and business services, up 24,000. Weakness was in retail trade which fell 26,000.
On the inflation front, average hourly earnings rose 0.2 percent in April, following a 0.3 percent boost in March. The consensus had projected a 0.3 percent boost in wages for March. Average hourly earnings slipped to up 3.7 percent on a year-on-year basis in April from up 4.0 percent in March. The average workweek in April edged down to 33.8 hours from 33.9 hours in March - equaling the consensus expectation.
Aggregate hours in manufacturing fell 0.4 percent in April, following a 0.5 percent rise in March, suggesting a weak month for manufacturing in April.
Turning to the household survey, the civilian unemployment rate edged up to 4.5 percent from 4.4 percent in March-matching the consensus expectation. Household employment dropped 468,000 in April, following a 335,000 jump in March. The labor force fell 392,000 in April, while the number of unemployed edged up 77,000. The employment-population ratio declined to 63.0 percent from 63.3 percent in March
Overall, today's employment report shows a moderating economy - one that fits the Fed's plan to bring inflation down. Bonds clearly will like the numbers and equities will move up if investors like the impact on Fed thinking more than the impact on earnings later this year.
Nonfarm payroll employment was quite strong in March, up 180,000 following a revised 113,000 gain in February. While manufacturing employment declined by 16,000, construction jobs rose by a sharp 56,000. The construction jump was likely due to atypically warm weather in March and we may see a reversal of that pulling down construction jobs and slowing overall employment growth. But look to other sectors to see if recent strength continues - and discount any moderate weakness in construction. On the inflation front, average hourly earnings rose 0.3 percent in March, following a 0.4 percent increase in February. The March figure was neither inspiring for inflation progress nor alarming. But the markets and the Fed will be watching to see if wage pressures are improving or not - especially after last week's employment cost report with strong wage gains in the first quarter.
Nonfarm payrolls Consensus Forecast for April 07: +100,000
Range: +40,000 to +135,000
Unemployment rate Consensus Forecast for April 07: 4.5 percent
Range: 4.3 to 4.6 percent
Average workweek Consensus Forecast for April 07: 33.8 hours
Range: 33.8 to 33.9 hours
Average hourly earnings Consensus Forecast for April 07: +0.3 percent
Range: +0.3 to +0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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