Friday, May 2, 2014

April Job Market

The headline numbers of this morning's job report were very strong: unemployment falling to 6.3% and 288,000 new jobs added.  Earlier this week, economic growth was reported to be near zero in the first quarter, but now the job growth was the highest since January 2012 ... is the economy at a standstill or accelerating?
First, let's dissect the job market report.  Let's start with the good news.  The job gains were quite strong and across the board.  In fact, next month the economy will finishing recouping the job losses suffered during the Great Recession (currently 113,000 below the pre-recession peak).  Construction employment reached 6 million, a gain of 32,000 for the month, 189,000 over the last 12 months and the highest level since June 2009.  Professional and Business services added 75,000 jobs in April and 676,000 in the last year.  Food and Drinking places continues to be strong, adding nearly 33,000 in the month and 1.3 million since hitting bottom in Feb 2010 (an increase of 14%).  Currently, 1 out of every 11 employees in the private sector works in a restaurant or bar.  Further evidence of strenght is shown by the increase in aggregate hours worked which, after declining slightly between November-February, is up sharply the last two months.  This provides support for the temporary effects of the harsh winter followed by a Spring thaw.

OK, are there any reasons for caution?  Why did the unemployment rate fall so much?  Over 800,000 people dropped out of the labor force, reducing the participation rate back to its recent low of 62.8%.  If the participation rate had remained constant, the unemployment rate would have remained at 6.7% (so the entire decline was due to fewer people looking for jobs).  It should be noted that the labor force was reported to increase by over 500,000 in March.  Given this volatility, it confirms the need to look at trends over time as opposed to monthly changes.  One more conern is that hourly earnings were flat in April as were weekly earnings, so the recent economic improvement has had little effect on wages thus far.

Going back to the question at the beginning of the post - is the economy at a standstill as indicated by first quarter GDP report or accelerating as indicated by the job market report?  This morning's report provides support for the idea that the harsh winter resulted in a temporary slowdown, supressing first quarter GDP.  Part of the job gains in recent months is due to a bounceback as the weather has improved, but the underlying trend has improved somewhat in 2014.  This doesn't necessarily mean the economy is ready for takeoff, but it does put to rest the idea that the economy is slowing down.