Jobs: A Cooling Trend for April
Given the big swings in monthly job-growth data recently, it's almost inevitable that the unexpectedly large acceleration in U.S. job growth in March should be followed by a correction in April.
For the April employment report scheduled for release May 2, Action Economics expects the headline non-farm payrolls figure to show a gain of 110,000—slightly above economists' median forecast of 106,000—following the weather-distorted increases of 180,000 in March and 113,000 in February. These figures remain below the average 2006 monthly gain of 188,000.
The average workweek is expected to hold at 33.9 hours, and hourly earnings should post another 0.3% gain. The unemployment rate is expected to hold at the cyclical low of 4.4%.
Weathering the Storm
To the degree that the labor market is at "full employment," it may prove difficult for employers to meet hiring needs at times of seasonal build, hence suggesting some downside risk to payroll growth over the near-term, outside of any evident weather swing. Such concerns are consistent with reports of shortages of skilled workers in some sectors.
Weather could play a factor in the April report. A large East Coast storm overlapped part of the survey period week for the monthly report. Since this survey followed unusually favorable weather during the March survey, the mix could hold back reported job growth.
Other labor-market indicators suggest some downside risk. The ADP Employment Survey reading of 64,000 in April translates to about a 100,000 gain in non-farm payrolls, given assumptions of a 16,000 government job gain and a 20,000 downward bias to the new ADP data.
Weekly initial jobless claims have been higher in April, with a projected month-average reading of 330,000 from 318,000 for March, 338,000 for February, and 306,000 for January. The April jump suggests some downside risk for job growth on the month.
The University of Michigan consumer sentiment index and the Conference Board's consumer confidence index have pulled back on the month, as the effect of the continued upswing in gas prices and ongoing negative news from the housing market continue to weigh. But this negative headline news effect has been fairly contained, with the levels of confidence remaining at high levels, which suggests that underlying strength in confidence remains.
The employment components from the factory sentiment surveys generally rose in April, suggesting manufacturing jobs could be less of a drag this month.
In total, we expect the April employment report to imply an ongoing tight labor market, though there is notable risk of underperformance for the payroll figures following the March pop. For now, momentum in the job market continues to provide support for consumption and gross domestic product forecasts despite the lingering effects of the ongoing inventory correction, though we do expect job growth to moderate through 2007.
Even if we see signs of reduced payroll growth, however, the high year-over-year wage growth figures fueled by a generally low unemployment rate are likely to persist for the foreseeable future.