A Little Color on the Disappointing Jobs Data

There is little that can be said about the disappointing US employment data.  Yet given the weakness of the ADP report and the softness of many of the regional Fed April surveys, the disappointment might not be as great as the stale surveys would have suggested. 

There is little positive in the report except perhaps that the back month revisions were higher and these typically are in the direction of the underlying trend.  March was revised up by 34k.  If you add the March revision of 45k private sector jobs to the April 130k increase and it does match consensus forecasts.

Nevertheless, the April report was the first time in 6 months the US created less than 150k jobs.  The other details did not make up for it.  Hourly earnings were flat.  The market expected a 0.2% increase.  The work week was flat and also failed to blunt the slower job growth. 

In terms of sectors, retail added 29k jobs after losing 21k in March.  Business services grew 62k jobs after growing 37k in March.  Temp jobs rose 21k in April after losing 9k in March.  Factory job growth slowed to 12k from 52k.  ADP estimate assume no manufacturing job growth.  Job growth in education and health care slowed to 23k from 45k. 

The disappointment spurs some speculation of QE3, but the risks have not really increased.  The data is not sufficiently far from the trend to be statistically significant.  Job growth was expected to slow.  The decline in the unemployment rate is a reflection of a lower participation rate which now stands at almost a three decade low. 

The bigger concern is going forward.  As noted by numerous economists, since the collapse of Lehman, the seasonal distortion appears to have created a pattern of weaker job growth after Q1.  Between this Lehman-inspired distortion, the unseasonably mild winter and the fact that output outstripped demand earlier, many fear a further slowing of the US economy. 

These remains some risk that Q1 GDP is revised higher, but the early call is for Q2 GDP to come in around 2.0-2.25%.    This would still be broadly consistent with the Fed's forecasts and would thus be insufficient to trigger a policy response.