The strong April payroll increase of 244,000 comes as a welcome tonic after bad news from the ISM nonmanufacturing survey and from initial unemployment insurance claims. Job gains were widespread and were permanent (temporary jobs actually fell slightly). Private services led the way, but manufacturing had another good month. Government jobs kept falling, which is no surprise.
Any bad news? The workweek did not increase, and hourly earnings rose only 0.1%, so compensation gains for those in work remained muted and below headline inflation. The workweek fell in the autos sector, as supply-chain interruptions from Japan began to bite. And the household survey sent a conflicting signal, with the unemployment rate rising by two ticks, to 9.0%, because household employment fell by 190,000. The household survey has been showing better employment numbers than the payroll survey for several months, so this month should be seen as a correction that brings their trends closer.
In the payroll details, manufacturing added 29,000 jobs, slightly better than March's 22,000 increase, and consistent with the bullish news still coming out of all surveys of the manufacturing sector. The gains were widespread. Although employment in motor vehicles and parts rose by 3,000, the first signs of the damage to production schedules from the Japanese natural disaster were evident in a 2.9% drop in hours worked. As a result, overall manufacturing production-worker hours were flat, pointing to a soft report for manufacturing production in April.
Construction gained 5,000 jobs, more than all of them in heavy and civil engineering. Residential construction jobs fell again by 5,000, and nonresidential jobs declined 3,000.
Private services were again the primary job generator, adding 224,000 new workers. The key gains were in retail (57,000), health (37,000), professional and technical services (33,000), and food services and drinking places (27,000).
The retail gain looks exaggerated because it partly reflects an unusual 27,000 gain for general merchandise stores that simply reverses a 27,000 loss in March. The increase in food services and drinking places is encouraging because it suggests more discretionary spending by consumers. Eating out is one area where you might have expected to see damage from soaring gasoline prices. Note that the highly publicized hiring surge by McDonald's began too late in the month to have affected the data.
The government sector shed 24,000 jobs, of which the bulk (22,000) were in state and local government. State employment was down 8,000 and local government was down 14,000. There is no sign of relief in employment cutbacks at the state and local levels.
The private workweek was steady, at 34.3 hours. The flat workweek combined with higher private employment to generate a 0.3% increase in hours worked during April. The hours trajectory suggests a faster increase in hours during the second quarter than the 2.0% increase in the first.
Average hourly earnings rose 0.1% over the month and 1.9% year-over-year—well short of headline inflation, and nothing to worry the Federal Reserve on the wage inflation front. Total payrolls rose 0.4%, pointing to a similar increase in wages and salaries for the month.
The unemployment rate rose from 8.8% to 9.0%, having previously fallen by a full percentage point since November. This month's drop reflected a 190,000 decrease in household employment and a small 15,000 increase in the labor force. This drop in employment reverses the recent pattern, which had been showing greater strength in the household survey than in the payroll survey, so it brings the trends in the two surveys closer together. Household employment is much more volatile from month to month than payroll employment. We expect the unemployment rate to edge down to about 8.5% by year-end.
The most comprehensive measure of underemployment (U-6)—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—rose from 15.7% to 15.9%.
We do not think that payroll employment growth will keep up the same pace in May and June, since we cannot dismiss the weaker evidence from initial claims. But the three-month-average monthly increase of 233,000 through April shows good momentum that should allow the economy to absorb the twin shocks from the Middle East and Japan without too much damage. GDP growth should pick up to more than 3% in the second quarter from the disappointing 1.8% rate in the first. If oil prices stay down, following their sharp drop yesterday, the economy can maintain that pace in the second half of 2011.
