Disincentive to work
Generous emergency benefits, seasonal quirks likely behind big April jobs miss.
The labor market added only 266,000 nonfarm jobs in April, well below the Bloomberg consensus that was expecting a very strong gain of 1 million, which would have been an 8-month high. Moreover, March was revised sharply lower by 146,000 jobs, from a preliminary gain of 916,000 to 770,000. That net miss of 880,000 over the past two months was completely inconsistent with accelerating strength in three important labor-market leading indicators—initial weekly jobless claims, the ADP private hiring survey and the Job Openings & Labor Turnover Survey (JOLTS). In fact, according to CNBC, this morning’s shocking miss was the largest since 1998. We think some unusual seasonal adjustment and stimulus-related factors were behind this negative surprise, and we elaborate on them below.
Claims, ADP and JOLTS sharply improved Initial weekly jobless claims plunged sequentially by 15.6% last week to a fresh post-pandemic low, breaking below the 500,000 for the first time in 14 months. Weekly claims have fallen by 92% from their peak of 6.15 million for the week that ended on April 4, 2020 to 498,000 for the week that ended on May 1. Continuing claims (a better measure of the recovering health of the labor market) have fallen by 84% from their peak at 23.1 million for the week that ended on May 9, 2020 to 3.7 million for the week that ended on April 24.
ADP added the most jobs in seven months in April, posting a 31% month-over-month (m/m) increase to 742,000 jobs, compared with 565,000 in March and only 180,000 in February. To be sure, April’s reading was short of a bullish expected gain of 850,000, but March was revised up from a preliminary gain of 517,000.
JOLTS posted a much stronger-than-expected gain during a very difficult weather month in February, surging to a 2-year high of 7.367 million jobs (6.9 million expected), compared with an upwardly revised 7.1 million in January. The survey lags nonfarm payrolls by a month, and next week’s March reading, estimated at 7.5 million, could rival the JOLTS’ record high of 7.574 million in November 2018.
What went wrong with the April reading? There are two plausible explanations. First, April tends to be a quirky month each year in terms of seasonal adjustments. On a non-seasonally adjusted basis, it appears that April 2021 added 1.089 million more jobs than in March, which was consistent with consensus expectations. But in April 2020, we lost 20.679 million jobs at the nadir of the global pandemic, so the year-on-year seasonal adjustment may have been overly skewed. That suggests the potential for a large positive revision in coming months.
Second, government policies may have had a chilling effect on hiring. Some state governments have been overly restrictive, despite the significant vaccination progress toward our goal of achieving adult herd immunity by Memorial Day. With many schools and child-care facilities still closed, parents may not have been able to return to work.
In addition, President Biden’s $1.9 trillion American Rescue Plan, which was signed into law in March, provided generous unemployment benefits such that an estimated half of the unemployed population in the U.S. is now making more money staying home rather than returning to their jobs. Counterintuitively, then, these stimulus checks are creating a disincentive to work.
Help wanted While every company in America is posting a figurative help-wanted sign right now, CNBC reports that 42% of companies can’t find workers to take their open jobs, even with wages soaring 0.7% m/m in April. And 91% can’t identify qualified workers with the necessary education, training and skills. Some companies are even offering cash bonuses for job candidates just to show up for the interview. The problem, according to these companies, is the enhanced unemployment benefits and the latest round of pandemic-relief checks are discouraging workers to return to their jobs.
How do we fix this? President Biden’s $300 weekly federal unemployment bonuses, which are in addition to a person’s regular weekly unemployment benefits paid by his or her state, are scheduled to run into September. So, the first step to encourage people to go back to work sooner is for Congress to pull forward the end date on those added benefits to May or June. South Carolina, for example, now plans to terminate all federal and pandemic-related jobless programs at the end of June.
In addition, the need for the additional $4 trillion in fiscal stimulus that President Biden recently requested from Congress is questionable. There’s still $1 trillion of stimulus from the so-called $2.2 trillion CARES Act signed into law in March 2020 that is still unspent. Perhaps Congress can repurpose those funds to facilitate President Biden’s much-needed physical infrastructure plans—new roads, bridges, broadband, the electric grid, etc.—and save the American taxpayer up to an additional $4 trillion in new federal debt.
Mixed bag on other jobs data The household survey gained 328,000 workers in April, roughly half the 609,000 added in March. The civilian labor force rose by 430,000 jobs, versus gains of 347,000 in March and 50,000 in February. The number of unemployed workers rose by 102,000 in April, up from declines of 262,000 in March, 158,000 in February and 606,000 in January.
As a result, the official rate of unemployment (U-3) ticked up to 6.1% (consensus at 5.8%) from a 1-year low of 6% in March but remained sharply below its peak of 14.8% in April 2020 (the single worst month for the labor market since record-keeping began in 1939). The labor impairment (or underemployment) rate (U-6), which is a better and broader barometer of the labor market that includes both part-time and discouraged workers, fell more sharply to 10.4% in April from 10.7% in March and from 11.1% in February, well below its record high of 22.9% in April 2020. Finally, the labor force participation rate rose to 61.7% in April, up from 61.5% in March and well above its trough of 60.2% in April 2020, which was a 47-year low.
K-shaped recovery stalls The unemployment rate for those with a bachelor’s degree or more continued to decline to 3.5% in April from 3.7% in March, less than half its 8.4% peak in April 2020. But that rate for individuals with less than a high school diploma backed up sharply to 9.3% in April from 8.2% in March, although it remains sharply below its peak at 21.2% in April 2020.
Labor-market internals weak Leisure & hospitality added 331,000 workers in April, versus a downwardly revised gain of 206,000 (preliminary gain of 280,000) in March. Construction added no jobs in April, compared with a downwardly revised gain of 97,000 (preliminary gain of 110,000) in March. Education & health care lost 1,000 jobs in April, after adding 104,000 in March. Manufacturing shed 18,000 jobs in April (consensus gain of 54,000 jobs expected), down sharply from a gain of 54,000 in March. Retail lost 15,000 jobs in April after adding 33,000 in March. Temporary help (an important labor-market leading indicator) lost 111,000 jobs in April and 8,000 in March, after adding 48,000 in February and 100,000 in January.
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