Hiring Probably Rose as Production Cooled: U.S. Economy Preview

Employers probably hired more workers in April than in the prior month and the jobless rate held at a four-year low, showing the early stages of government budget cuts failed to destabilize the U.S. labor market, economists said before reports this week.

Payrolls increased by 150,000 workers after an 88,000 gain in March, according to the median forecast from 70 economists surveyed by Bloomberg before a May 3 Labor Department report. The unemployment rate may have stayed at 7.6 percent, matching March’s reading as the lowest since December 2008. Other figures may show manufacturing cooled as companies reined in stockpiling on concern demand will deteriorate.

Employers took on staff even amid signs that cuts in planned federal spending are restraining business investment in new equipment. The expansion may slow this quarter, which means hiring won’t keep accelerating, preventing the jobless rate from retreating to a level Federal Reserve officials deem optimal.

“The labor market had a very strong February, a disappointing March and now things are looking better,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “If businesses were more concerned about a more-lasting downturn, they would have started laying off more people.”

While better than in March, the recent pace of hiring is still weaker than the 197,000 average increase in payrolls from September to February.

Fed Trigger

Job creation needs to proceed at a faster pace to pull unemployment closer to the 6.5 percent rate Fed policy makers have said should be reached before they consider raising the benchmark lending rate. In March, the central bankers agreed to keep buying bonds at a monthly pace of $85 billion to spur economic growth and reduce joblessness.

The Federal Open Market Committee will gather again this week, and at the conclusion of their two-day meeting in Washington on May 1, the group will release a new statement regarding the outlook for monetary policy.

Any slowdown in growth this quarter brought on by federal spending cuts would discourage FOMC members. Some $85 billion in automatic budget reductions, known as sequestration, began March 1. The Congressional Budget Office has estimated the decreases will reduce gross domestic product this year by 0.6 percentage point.

A Commerce Department report last week showed the U.S. economy grew at a 2.5 percent annualized rate from January to March, restrained by declining defense outlays that highlight the potential hit from government reductions. Economic growth will cool to a 1.5 percent pace in the second quarter, according to a Bloomberg survey of economists from April 5 to April 9.

Shares Fall

Stocks slumped following the weaker-than-projected first-quarter GDP report, with the Standard & Poor’s 500 Index ending April 26 down 0.2 percent for the day at 1,582.24.

Slowing consumer spending at the end of the first quarter also hints at what’s in store in coming months. Economists project a Commerce Department report tomorrow will show household purchases were little changed in March following a 0.7 percent gain in February. The same release will probably show Americans’ earnings growth also cooled, with incomes rising by 0.4 percent after increasing 1.1 percent in February.

Besides hurting employment prospects, the weaker demand projected for the second quarter will damp activity at factories, which have begun to slow inventory building in response. The Institute for Supply Management manufacturing index, out May 1, slipped to 51 in April from March’s 51.3, a second consecutive decrease, according to economists’ estimates. Index readings greater than 50 signal expansion.

Trade Gap

Help for manufacturers could come in the form of stronger demand from overseas economies. The trade deficit probably shrank to $42.2 billion in March from $43 billion, Commerce Department figures are projected to show on May 2.

Looking past the second quarter, businesses and economists foresee activity picking up as government budget cuts are worked out and the economy regains its footing.

“We are certainly thinking, along with our entire industry, that there should be a pickup in the second half,” Mark Pigot, chairman and chief executive officer of truck-maker Paccar Inc., said during an April 23 earnings call. “We’re seeing people saying, ‘Hey, seems like a good time, I’m getting more of a positive feeling for the general economy. It’s not booming, but getting a better feeling.’”

                        Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Pers Inc MOM%             4/29     March      1.1%      0.4%
Pers Spend MOM%           4/29     March      0.7%      0.0%
Pending Homes MOM%        4/29     March     -0.4%      0.9%
Employ Costs QOQ%         4/30       1Q       0.4%      0.5%
Case Shiller Monthly MO   4/30      Feb.      1.0%      0.8%
Case Shiller Monthly YO   4/30      Feb.      8.1%      9.0%
Chicago PM Index          4/30     April      52.4      52.6
Consumer Conf Index       4/30     April      59.7      61.0
Construct Spending MOM%   5/1      March      1.2%      0.6%
ISM Manu Index            5/1      April      51.3      51.0
Trade Balance $ Blns      5/2      March     -43.0     -42.2
Productivity QOQ%         5/2        1Q      -1.9%      1.4%
Labor Costs QOQ%          5/2        1Q       4.6%      0.6%
Initial Claims ,000’s     5/2      27-Apr     339       346
Nonfarm Payrolls ,000’s   5/3      April       88       150
Private Payrolls ,000’s   5/3      April       95       163
Manu Payrolls ,000’s      5/3      April       -3        5
Unemploy Rate %           5/3      April      7.6%      7.6%
Hourly Earnings MOM%      5/3      April      0.0%      0.2%
Hourly Earnings YOY%      5/3      April      1.8%      1.9%
Factory Orders MOM%       5/3      March      3.0%     -2.5%
ISM NonManu Index         5/3      April      54.4      54.0
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