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
The April employment report was not nearly as bad as expected and wage pressures came in soft. Overall, the economy is flat rather than declining. Nonfarm payroll employment in April slipped 20,000, following a decline of 81,000 in March and a decrease of 83,000 in February. April's fall in employment was not as severe as the consensus forecast for a 75,000 drop. The latest decrease was led by declines in construction, manufacturing, and retail trade.
Revisions to payroll numbers were minor, although on the down side. The initial March estimate of an 80,000 drop was revised down 1,000 and February's previous estimated decrease of 76,000 was revised down 7,000. March and February combined were revised down 8,000.
While the overall payroll numbers were not too bad, the construction sector is still depressed and the manufacturing sector appears to be worsening. Construction jobs fell by 61,000 in April, following a 46,000 decline in March. Manufacturing employment fell 46,000 after a 48,000 decrease in March. Natural resources & mining slipped 3,000 in April.
The service-providing sector showed some strength with a 90,000 gain for the latest month. Strength was led by a 39,000 boost in professional & business services and a 37,000 rise in health care while weakness was seen in retail trade, which fell 27,000 in April.
On a year-on-year basis, nonfarm payroll employment slipped to up 0.3 percent in April from up 0.4 percent in March.
On the inflation front, average hourly earnings rose a very modest 0.1 percent April, which came in well below the market forecast for a 0.3 percent gain. The average workweek edged down 0.1 hour to 33.7 hours in April. For manufacturing, the average workweek declined more sharply by 0.3 hours to 40.9 Aggregate hours in manufacturing dropped 1.2 percent in April, following a 0.1 percent decrease the month before.
Turning to the household survey, the civilian unemployment rate slipped to 5.0 percent from 5.1 percent in March and came in better than the consensus forecast for 5.2 percent. Household employment jumped 362,000 in April while the number of unemployed fell 189,000. The household survey has a much smaller sample size than the payroll survey and is more volatile on a monthly basis.
The April jobs report shows that the economy is not as weak as many had feared but the labor market is still a little on the soft side. For now, the services sector is keeping the economy afloat and, given the weakness in housing, this is about as good a report as can be expected. Equities should really like the report along with the dollar while interest rates are likely to firm. Additionally, 15 minutes before the jobs report, the Fed announced an expansion of the securities that the Fed accepts for its Term Securities Lending Facility (TSLF) auctions and announced other expansions of its credit market tools, which were looked upon favorably by the markets once the jobs report came in.
Nonfarm payroll employment is now the focal point of evaluating whether the economy is in recession or perhaps even in a worsening recession. Payroll employment has fallen three months in a row. Nonfarm payroll employment dropped by 80,000 in March, following a decline of 76,000 in February and a decrease of 76,000 in January. In the latest month, payroll weakness was led by the goods-producing sectors again but softness also continued in services. Construction jobs fell by 51,000 while manufacturing employment declined 48,000. Service-providing jobs rose a mere 13,000 in March. Despite weakness in hiring, wage based inflation pressure is still on the firm side. Average hourly earnings increased 0.3 percent in March, leaving the year-on-year rate at 3.6 percent. Weakness in hiring and increased lay-offs pushed the civilian unemployment rate up to 5.1 percent from 4.8 percent in February. March's unemployment rate is the highest since 5.1 percent for September 2005.
Nonfarm payrolls Consensus Forecast for April 08: -75,000
Range: -150,000 to -25,000
Unemployment rate Consensus Forecast for April 08: 5.2 percent
Range: 5.1 to 5.3 percent
Average workweek Consensus Forecast for April 08: 33.7 hours
Range: 33.7 to 33.8 hours
Average hourly earnings Consensus Forecast for April 08: +0.3 percent
Range: +0.2 to +0.3 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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