Orlando's Outlook: Mixed bag for April labor

05-04-2018

Bottom line The unemployment rate plunged to 3.9% in April, marking its lowest level in 18 years. But that positive metric masks an otherwise mixed picture for last month’s jobs report. Nonfarm and private payrolls were surprisingly weaker than expected in April, although that miss was offset by positive revisions to March’s weather-impaired shellacking. Construction, manufacturing and temporary help all improved sequentially in April, but wage growth ticked down to a tepid gain of only 2.6% year-over-year (y/y) and hours worked remained flat for the fifth time in the past six months. The participation rate slipped to 62.8% and the labor-impairment rate fell to 7.8%, but that’s largely because the civilian labor force plummeted by 236,000 workers last month.

Taken collectively, we see no reason why Federal Reserve Chair Jerome Powell would change his plans for another quarter-point interest-rate hike at the Fed’s mid-June policy-setting meeting. But with slower job creation and sluggish wage growth, today’s jobs report augurs for two more hikes over the course of 2018—perhaps in June and December—rather than the more hawkish consensus view for three or more.

Weaker-than-expected nonfarm payrolls gain The 164,000 added jobs in April was below the Bloomberg consensus of 193,000 jobs (and our own estimate of 203,000 here at Federated). The Bureau of Labor Statistics (BLS) revised March higher, from 103,000 jobs to 135,000, while February was revised lower from 326,000 to a final gain of 324,000. With January at 176,000 jobs, December at 175,000 and November at 216,000, that’s a solid 6-month average of 198,000.

ADP and claims ease To be sure, April’s ADP report added a stronger-than-expected 204,000 private payroll jobs (consensus at 198,000), but March was revised down from 241,000 jobs to 228,000 versus 241,000 jobs in February. So while the sequential trend for ADP has slipped the past few months—perhaps contributing to this morning’s nonfarm payroll miss—ADP has still averaged 227,000 jobs in each of the past six months, the strongest stretch in four years. Initial weekly unemployment claims for the survey week that ended April 14 rose to 233,000, which may also have impacted this morning’s miss. But claims have since fallen to 209,000 last week (a new 49-year cycle low) and 211,000 this week.

Household survey turns positive The admittedly volatile household survey rose by 3,000 jobs in April, after declining by 37,000 jobs in March due to the snow storms, which had broken a string of four consecutive months of positive readings. February, for example, added a whopping 785,000 jobs. This leading indicator for nonfarm and private payrolls serves as the basis for the unemployment rate (U-3).

Wage growth eases and hours worked flat Average hourly earnings on a y/y basis rose only 2.6% in April. That’s the third consecutive month at that level as March was revised down a tick to an increase of 2.6%. That’s also down from January’s healthy 2.8% increase. For the third consecutive month and the fifth time in the past six months, the average private workweek for all employees was unchanged at 34.5 hours worked in April. Each additional 0.1 hour worked theoretically adds 350,000 jobs to the economy.

Construction rebounds while manufacturing rises Construction added 17,000 jobs in April, after losing an upwardly adjusted 10,000 jobs in March due to the inclement weather. Construction had added 67,000 jobs in a relatively warm February, so we’ve still got some upside here. Manufacturing added 24,000 jobs in April after adding 22,000 jobs in March, compared with 31,000 in February.

Temps rebound, but retail slips Temporary help added 10,000 jobs in April, after losing 2,000 jobs in March. In contrast, they added a healthy 22,000 positions in February. Retail, on the other hand, only gained 2,000 jobs in April, down from an upwardly revised increase of 6,000 jobs in March and 46,000 in February.

Unemployment, labor-impairment and participation rates all fall The unemployment rate fell to an 18-year low of 3.9% in April, after six consecutive months unchanged at 4.1%. Similarly, the labor-impairment rate (U-6)—also known as the “total” rate of unemployment (or the underemployment rate) because it more broadly includes discouraged workers and the underemployed—dropped to 7.8% in April from 8% in March and from 8.2% in February. Finally, the labor-force participation rate (the share of working-age people in the labor force) slipped another tick in April to 62.8%, down from a 5-month high of 63.0% in February, but still above a 41-year low of 62.3% set in September 2015. The civilian labor force contracted by 236,000 workers in April, which contributed to these declines, compared with a loss of 158,000 workers in March and a powerful gain of 806,000 workers in February.

Happy “Star Wars” Day today—May the Fourth be with you!

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