Friday, May 7, 2010

April Employment: Solid Evidence of a Labor Market Rebound

The April employment report ( provides further strong evidence that labor market conditions are turning around in a convincing manner.

Not only did ex-census nonfarm payrolls increased by a robust 224,000 last month (overall payroll gain of 290,000, including 66,000 census workers) but both March and February were revised upward for a net cumulative gain of 121,000. The direct implication of these numbers is that in the last two months, nonfarm payrolls, excluding census workers, have averaged a gain of 203,000- which is very close to what can reasonably be expected to represent the medium-term trend in payroll growth in this expansion.

Nonfarm Payrolls (monthly seasonally adjusted, incl. census workers)

Source: BLS

Adding credibility to the picture of steadily improving labor markets, the gains in the establishment survey were broad-based among the various categories: an apparently irrepressible manufacturing sector added another 44,000 jobs (third consecutive gain), retail trade 12,000 (also third consecutive gain), leisure and hospitality 45,000, education and health services 35,000, even the troubled construction industry generated 14,000 jobs following a 26,000 gain in March.

The average workweek for all employees inched higher again to 34.1 hours, validating a steady uptrend since the beginning of the year, and pointing to the sustainability of the latest pick up in hiring in the months ahead. The index of aggregate hours worked also rose a healthy 0.4%, replicating its gain in March.

The seemingly disappointing rise in the unemployment rate to 9.9% is actually the result of a 805,000 surge in the size of the civilian labor force that overran an impressive gain of 550,000 in household employment last month and caused the rate to increase.

The expansion of the labor force in the early phase of an economic expansion is a classic phenomenon and should be viewed as evidence that perceptions about the state of labor market conditions among prospective workers are improving quickly, motivating them to start looking for employment (and, therefore, be counted as part of the labor force again). Employment, as measured by the household survey has actually soared by a total of 814,000 in the last two months, despite its spectacular inability to make the unemployment rate move in a more encouraging direction. Still, as the distortions related to the interplay between labor force growth and employment in this phase of the cycle runs its course, the unemployment rate should be on a decisive downward trend in the second half of the year.

The labor market has convincingly turned the corner, inasmuch as, given the enormous slack that has been created by the depth of the last recession, such an improvement can never come fast enough. Payroll growth though is acquiring a respectable momentum and, as the residual caution of the business sector's hiring plans slowly subsides, the potential clearly exists for payroll gains to remain on a 200,000+ path later this year.

Anthony Karydakis

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