April Jobs Report Disappoints but The Outlook Remains Favorable – Robert Hughes (05/10/2021)

U.S. nonfarm payrolls added 266,000 jobs in April after a gain of 770,000 in March. February and March had net downward revisions of 78,000. The April gain is the fourth in a row and 11th in the last 12 months, bringing the four-month gain to 1.805 million and the 12-month post-plunge recovery to 14.147 million but is still well below the 22.362 million loss in March and April of 2020, leaving nonfarm payrolls 8.215 million below the February 2020 peak (see first chart).

Private payrolls posted a 218,000 jobs gain in April after a 708,000 gain in March. The two prior months had a net downward revision of 8,000. The April rise in private payrolls is also the fourth in a row and 11th in the last 12 months. April brings the four-month gain to 1.670 million and the 12-month recovery to 14.147 million versus a loss of 21.353 million in March and April of 2020, leaving private payrolls 6.971 million below the February 2020 peak (see first chart).

Breadth of gains for April was mixed. Within the 218,000 gain in private payrolls, private services added 234,000 while goods-producing industries lost 16,000. For private service-producing industries, the gains were led by a 331,000 surge in leisure and hospitality (following gains of 206,000 in March and 413,000 in February), a 19,000 rise in financial services, and a 19,000 gain in health care and social assistance. Declines were seen in business and professional services (-79,000), transportation and warehousing (-74,000) and education services (-20,000; see second chart).

Within the 16,000 drop in goods-producing industries, construction was unchanged, durable-goods manufacturing decreased by 20,000, nondurable-goods manufacturing rose by 2,000, and mining and logging industries also added 2,000 jobs (see second chart).

Despite the fourth consecutive gain, every private industry group still has fewer employees than before the government lockdowns. Leisure and hospitality leads with a loss of 2.8 million jobs followed by health care, down 828,000, and professional and business services with a drop of 748,000 (see third chart).

On a percentage basis, the losses are more evenly distributed. Leisure and hospitality still leads with a 16.8 percent drop since February 2020, mining and logging comes in second with an 10.9 percent loss followed by education services at 9.0 percent and information services at 7.8 percent. Five of the 14 private industries shown in the report have declines of 4 percent or more since February 2020 (see fourth chart).

The government sector added 48,000 employees in April, with local government payrolls rising by 32,000, state government payrolls up 7,000, and the federal government adding 9,000 workers.

Average hourly earnings rose 0.7 percent in April, putting the 12-month gain at 0.3 percent. The average hourly earnings data should be interpreted carefully, as the concentration of job losses for lower-paying jobs during the pandemic distorts the aggregate number.

The average workweek increased in April, rising 0.1 hours to 35.0 hours. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls gained 1.2 percent in April. The index is up 16.3 percent from a year ago.

The total number of officially unemployed rose to 9.812 million in April, a rise of 102,000 from March. The unemployment rate rose to 6.1 percent while the underemployed rate, referred to as the U-6 rate, fell to 10.4 percent in April. In February 2020, the unemployment rate was 3.5 percent while the underemployment rate was 7.0 percent (see top of fifth chart).

The participation rate rose in April, coming in at 61.7 percent versus a participation rate of 63.3 percent in February 2020. The employment-to-population ratio, one of AIER’s Roughly Coincident indicators came in at 57.9 for April, above the 57.8 ratio in March 2021 but well below the 61.1 percent in February 2020 (see bottom of fifth chart).

The April jobs report shows a modest gain in private payrolls, concentrated in leisure and hospitality. Despite the disappointing result, other signs suggest the economic recovery from the government lockdowns in 2020 is gaining momentum as the restrictions on consumers and businesses are lifted. However, the damage done by the lockdowns was severe; for most private industries, employment is still below pre-pandemic levels, quite substantially below in some cases, and is likely to take a significant amount of time to fully recover.

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