Friday, May 4, 2012

Employment Report -- "Healing Slower Than Paint Drying"

From the BLS:

Nonfarm payroll employment rose by 115,000 in April, and the unemployment rate was little changed at 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care, but declined in transportation and warehousing.
OK -- that alone is enough for me to say "underwhelmed."  Essentially, we're already back to a period where we're growing, but barely.

From the household survey, we do have some good news.  The long-term structural issues -- long-term unemployed, employed part-time for economic reasons etc.. -- are stabilizing.

The establishment survey shows gains in most areas -- professional services, retail trade, health care and manufacturing.  The problem is the gains simply aren't enough to indicate that the economy is healing at a "faster than paint drying" pace.

As to the workweek and wages, we have this:

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in April. The manufacturing workweek edged up by 0.1 hour to 40.8 hours, and factory overtime rose by 0.1 hour to 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.8 hours. (See tables B-2 and B-7.)

In April, average hourly earnings for all employees on private nonfarm payrolls rose by 1 cent to $23.38. Over the past 12 months, average hourly earnings have increased by 1.8 percent. In April, average hourly earnings of private-sector production and nonsupervisory employees rose by 3 cents to $19.72. (See tables B-3 and B-8.)
Again -- a very slow and painful healing process.
NDD here with some additional comments:

While the headline number was poor compared with recent reports, the internals were actually pretty good.

Let's start with the leading indicators in the report:
  - the manufacturing workweek increased by 0.1 hours
  - temporary help added 21,000 jobs
  - manufacturing employment went up 16,000 jobs
  - while construction decreased slightly, -2,000, for the third month in a row, building materials and garden center jobs increased.  This is added evidence that the housing market is slowly turning.

Other good news: 
  - both February and March were revised higher.  This is what happens in recoveries, not heading into recessions.  February's number is now +259,000.  March is now +154,000.
  - aggregate hours increased 0.1 to 96.0.  This is again confirmation of an improving job situation.
  - U3 unemployment dropped to 8.1%.  You probably recall my graphs showing that the initial jobless claim rate leads the unemployment rate, and that an unemployment rate under 8% was likely within the next few months.

There was some tepid or disappointing information as well:
 - average hourly earnings only increased by one cent.  YoY hourly earnings have only increased 1.8%.  Absent mortgage refinancing, where exactly is continuing spending going to come from?
 - the broader U6 unemployment rate, which includes involuntary part time workers, was flat at 14.5%
 - the household survey actually showed a loss in jobs for the second month in a row, down 169,000.  While this series is more volatile, it does have a tendency to lead at turning points. This is an important sign of weakness.
 - more government layoffs, -15,000. Teachers and firefighters are consumers too.
 - the labor participation rate dropped 0.1% to 63.6%. Those not in the labor force increased 522,000.  This is sure to continue the debate about how much is due to Boomer retirements vs. discouraged workers.

All in all, the internals were better than the headline, especially as to leading indicators, but there were several yellow flags.