Saturday, May 7, 2016

April jobs slowdown concerning, but still growth

I mentioned earlier this week that a good indicator whether the tepid economic growth of the 1st Quarter of 2016 was a seasonal fluke would come with the April jobs report. Well, that jobs report dropped yesterday, and the signs aren’t great.
The U.S. labor market grew in April at its weakest pace in seven months, new government data showed Friday, as more firms held off on hiring amid anxiety about broader economic weaknesses.

Employers added 160,000 new jobs and the unemployment rate held steady at 5.0 percent.

The latest jobs data provided an unexpectedly downcast signal about the nation’s labor market: A surge of Americans dropped out of the workforce and hiring in several key industries, including construction and manufacturing, all but stalled. The Department of Labor also revised downward jobs gains in the prior two months by a combined 19,000.
Ugh. The 160,000 jobs added (141,000 with the downward revisions) comes after Q1 2016 had the slowest 3-month growth in jobs in over 2 years. And as the article alludes to, the unemployment rate sticking at 5.0% was more a function of 362,000 people dropping out of the work force than it reflected more people working. Granted, there had been a large run up in the work force and “employed” status in the last 3 months (the participation rate rose by 0.4% in that time), so maybe some of this is a simple one-month correction. But it’s still not a good number, and it needs to be turned around next month to calm concerns.

Drilling down into the numbers of the BLS’s job report shows that a couple of sectors continued to show gains in April, while one sector in particular continued to suffer in light of low oil prices.
Professional and business services added 65,000 jobs in April. The industry added an average of 51,000 jobs per month over the prior 12 months. In April, job gains occurred in management and technical consulting services (+21,000) and in computer systems design and related services (+7,000).

In April, health care employment rose by 44,000, with most of the increase occurring in hospitals (+23,000) and ambulatory health care services (+19,000). Over the year, health care employment has increased by 502,000.

Employment in financial activities rose by 20,000 in April, with credit intermediation and related activities (+8,000) contributing to the gain. Financial activities has added 160,000 jobs over the past 12 months.

Mining employment continued to decline in April (-7,000). Since reaching a peak in September 2014, employment in mining has decreased by 191,000, with more than three-quarters of the loss in support activities for mining.
Another minor bright spot is that manufacturing showed an increase of 4,000 jobs after shedding 45,000 jobs in that sector in the previous two months, although those gains were heavily concentrated in cars and auto parts. With the dollar starting to weaken but consumption of autos also weakening, it’ll be intriguing to see which direction manufacturing employment takes in the coming months.

What is more encouraging in this report is the tick up in hourly and weekly wages. Hourly wages were up 0.3% in April, and hourly and weekly wages are both up nearly 2.5% year-over-year, about double the rate of inflation over the last 12 months. Obviously, the distribution of those increases are also a key, but at least we are starting to see a bit of overdue positive movement for wages. We'll see if wages continue to beat the rate of inflation as gas and housing costs climb in the coming months.

And while the jobs number is below-trend, let's not panic button too much in this presidential election year. While the unemployment rate is at the same 5.0% that we were at in 2008, it's still a positive direction for jobs in 2016. That's very different than what was starting to unravel 8 years ago.

Total job change
All jobs
April 2016 +160,000
April 2008 -210,000

April 2015-April 2016 +2,692,000
April 2007-April 2008 +194,000

Private sector job change
April 2016 +171,000
April 2008 -217,000

April 2015-April 2016 +2,586,000
April 2007-April 2008 -81,000

So while it does seem that things are stalling out a bit compared to the strong job market of 2015, let’s not warm up the red lights of “RECESSION” yet. Maybe these numbers reflect an expansion near or at its peak after nearly 7 years, but there also isn’t a clear sign that things are going south like we had in the months before Wall Street blew up in the Fall of 2008. Just keep your eyes peeled for other data in the coming months, as that’ll give us a better idea whether the recent slowdown is a minor soft patch between bouts of the relatively steady growth we’ve grown accustomed to under President Obama, or if something truly different and worrying might be coming our way.

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