US Added 115,000 Jobs In April, Unemployment Rate Falls To 8.1%

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  • Man carrying a stack of job listings listens to a discussion at the One Stop employment center in San Francisco
    A man carrying a stack of job listings listens to a discussion at the One Stop employment center in San Francisco, California, August 12, 2009.
  • US Job Market
    The U.S. economy added far fewer jobs than expected in April, while the unemployment rate edged down as more people gave up hope of finding jobs, reinforcing the fear that the job market recovery could be losing steam.
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The U.S. economy added far fewer jobs than expected in April, while the unemployment rate edged down as more people gave up hope of finding jobs, reinforcing the fear that the job market recovery could be losing steam.

Nonfarm payrolls rose by 115,000 last month, the smallest gain since October 2011, while private-sector employers added 130,000 jobs, the Labor Department said Friday. Factories added 16,000 jobs in April. Since its most recent employment low in January 2010, manufacturing has added 489,000 jobs, largely in durable goods manufacturing.

Payroll data for February and March were revised upward from the initial estimates by a combined 53,000. During the December to February period, gains averaged 252,000 per month.

Economists polled by Thomson Reuters had called for a total gain of 170,000 jobs in April.

The unemployment rate, which is obtained from a separate household survey, dropped to 8.1 percent in April from 8.2 percent in March on declining labor-force participation. Economists were expecting the unemployment rate to hold at 8.2 percent. That still leaves almost 13 million Americans who would like to work without a job.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in April, while average hourly earnings were also essentially unchanged at $23.38, the weakest since August.

Last month, the labor-participation rate, which is the amount of working-age people who have jobs or are still looking for jobs, declined to 63.6 percent from 63.8 percent in the prior month -- a 30-year low. When the recession officially started in December 2007, the labor-participation rate stood at 66 percent and the unemployment rate was at 5 percent.

The pace of job creation is central to President Barack Obama's re-election chances in November, when the economy is likely to be the top issue for voters.

In January 2009, when Obama entered office, the unemployment rate was 7.8 percent. The jobless rate peaked at 10 percent nine months later. Since August, it has tumbled from 9.1 percent to 8.2 percent.

If the job numbers start to get weaker, that's going to throw fuel into the Romney camp, said Lance Roberts, chief strategist at StreetTalk Advisors. Historically speaking, no president has ever been elected to a second term when unemployment has been above 8 percent.

Weather Payback

We expect a payback in the spring that starts out small in March but grows in April, Merrill Lynch analyst Neil Dutta wrote in an April 23 note to clients. The likelihood is that activity, particularly across many retail establishments, was pulled forward into the winter at the expense of the spring.

The U.S. has enjoyed an exceptionally mild winter, with fewer layoffs occurring in weather-sensitive sectors, which resulted in bigger seasonally-adjusted employment gains.

The January to March period was the warmest first quarter in records going back to 1895, according to the National Oceanic and Atmospheric Administration.

Goldman Sachs chief economist Jan Hatzius pointed out that there wasn't much payback in March, as the payroll growth pace in the cold and warm states was in line with the pre-winter pace, suggesting the payback for the elevated growth rates in prior months has yet to occur.

We believe that the partial normalization of the weather, and more importantly, the fact that weather doesn't matter as much for the level of payrolls after March, will lead to a payback of at least 50,000 in the April report, Hatzius wrote in an April 27 note to clients.

Manufacturing

The importance of U.S. manufacturing can't be overstated. If U.S. manufacturing were a country by itself, it would rank as the ninth largest economy in the world, according to the Manufacturing Institute.

Manufacturing has remained the bright spot in this recovery all along and now economists are worried that the sector could be peaking out.

The U.S. manufacturing has begun a secular recovery, said David Levy, chairman of Jerome Levy Forecasting Center. It's going to be a much stronger part of the global production in the long run, but we are still going to get hit by the cycle.

Tuesday's ISM manufacturing index, which measures manufacturing activities on a national level, came in well ahead of market expectations, rising to 54.8 in April from 53.4 in March, the highest since June 2011. That provided a welcome relief from a string of soft regional manufacturing measures. Notably, a gauge of the Chicago-area manufacturing activities slowed in April to the weakest growth rate in 29 months.

The regional manufacturing index is more sensitive to what's really going on in the economy and it tends to lead the ISM by about a month, Roberts said. So very likely, the weakness that we have seen over the last couple of months in the regional manufacturing indexes will show up in ISM in the next month.

More importantly, a slowdown in key markets such as Europe and China has been hurting U.S. exports.

Clearly, our economy is being more affected by the softening in the world economy than in the past because our exports, and this is a good thing, have actually been growing relatively to the size of our economy, Levy said.

But that means we are more affected by the world and the world economy almost everywhere has been slowing down, if not contracting in a few places, Levy added.

Echoing that view, Roberts said he'd expect to see manufacturing being the first area to get hit because of export-related weakness, as a lot of the regional surveys are showing that employers aren't hiring.

Recessionary Levels

The long, tepid post-recession recovery has lowered American's expectations to a great extent.

Historically, in every past recession, people are freaking out about being in a recession when initial jobless claims are at 320,000 or 340,000, Roberts said. We are happy at 380,000. If you look at most of the indices, we are still hovering at very recessionary levels, however, consumer confidence is up.

Consumer confidence improved significantly over the past month with both the Conference Board and University of Michigan consumer sentiment surveys rising to their highest level in a year.

The Commerce Department said Friday the U.S. economy expanded at a 2.2 percent annual rate in the first quarter after a 3 percent increase in the prior three months.

We've injected $29 trillion in various forms of bailouts from Bear Stearns to Maiden Lane buying toxic assets, to bailing out AIG, to quantitative easing one, two, operational twist, so forth and so on, Roberts said. Three years into a post-recessionary environment, we should be growing at between 6 and 8 percent with no liquidity injection.

It really shows you how fragile we are, without the financial support from the government, the picture would look drastically different, Roberts added.

This helps explain why Federal Reserve policy makers are sticking to a plan that holds borrowing costs at rock-bottom levels through late 2014 to spur growth.

Speaking at a news conference following the April Federal Open Market Committee meeting, Fed Chairman Ben Bernanke said the central bank remains ready to act.

We remain entirely prepared to take additional balance sheet actions if necessary to achieve our objectives, Bernanke told reporters. So those tools remain very much on the table, and we would not hesitate to use them should the economy require that additional support.

Unsustainable Household Purchases

Bigger gains in hiring and wages are needed to sustain household purchases, which accounts for more than 70 percent of U.S. economic growth. In the first quarter, consumer spending climbed 2.9 percent, the fastest pace since the end of 2010.

However, that rate might not be sustainable.

How much Americans are bringing home and where they're getting their income from tells two very different stories.

Personal income was up $50.3 billion, or 0.4 percent, in March. Yet, nearly a quarter of that income came from some type of transfer.

Personal current transfer receipts increased $11.6 billion in March, compared with an increase of $300 million in February. Within current transfer receipts, government social benefits to persons for social security increased $6.8 billion, compared with an increase of $2.6 billion.

There's a tremendous amount of external support to income at this point other than wages and salaries, which aren't growing at a rate to offset the increases in inflationary pressures, according to Roberts.

Food and energy are now eating up more than 20 percent of wages and salaries and you've got 46 million people on food stamps, Roberts said.

Meanwhile, the personal savings rate has dropped to 3.8 percent, which doesn't leave much room for consumers to take more money out.

Very likely, we are going to see a decrease in consumption in the next couple of quarters as consumers cannot carry the full burden of the economy at 71 percent of consumption for much longer, Roberts said.

FOMC

At their most recent meeting in April, members of the FOMC said they expect growth to remain moderate over coming quarters and then to pick up gradually, while noting that inflation has picked up somewhat.

In describing the job market, Fed officials said the unemployment rate has declined but remains elevated, while in March, they said the jobless rate had declined notably in recent months but remains elevated.

Fed officials reduced their forecast for unemployment after payroll gains averaged more than 200,000 a month during the first quarter, while affirming a plan to keep the benchmark lending rate around zero, at least through late 2014.

Policy makers forecast the unemployment rate would average 7.8 percent to 8 percent in the final three months of this year, compared with a forecast of 8.2 percent to 8.5 percent in January. However, the new forecasts are still far above officials' estimates for full employment, which range from 4.9 percent to 6 percent.

Nothing is going to greatly change the Fed's position, Levy said, referring to the Fed's possible reactions to the results of Friday's nonfarm payrolls report. Basically nothing is going to happen unless until people get scared enough.

Market Reaction

Markets often react strongly to Friday's employment report.

U.S. stock market futures traded slightly higher Friday. Futures on the Dow Jones Industrial Average rose 16 points, to 13,159.00, while those for the S&P 500 index added 2.60 points, to 1,38.50.

Futures for the Nasdaq 100 index gained 5 points, to 2,697.00.

It has become a theater of the moment and just one more data point in a big mix of confusing sense of what's going on, Roberts said.

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