April Jobs Numbers Come in Well Below Consensus

In the days ahead of last Friday’s employment report from the Bureau of Labor Statistics, prognosticators went big, with consensus anticipating nearly one million new April jobs and even one economist confidently predicting 2.1 million new jobs.

Alas, nearly everyone was wrong. BLS on Friday reported total nonfarm payroll employment rose by just 266,000 in April, with the unemployment rate ticking up slightly to 6.1 percent. Normally, monthly job growth of 266,000 would appear to indicate a solid month; but with expectations high and an economy seemingly shifting into turbo, the number landed with a thud.

Both the unemployment rate and the number of unemployed persons, at 9.8 million, were little changed in April. These measures are down considerably from their recent highs in April 2020 but remain well above their levels prior to the coronavirus pandemic (3.5 percent and 5.7 million, respectively, in February 2020).

The change in total nonfarm payroll employment for February was revised up by 68,000, from +468,000 to +536,000, and the change for March was revised down by 146,000, from +916,000 to +770,000. With these revisions, employment in February and March combined came in 78,000 lower than previously reported.

“Surprisingly, job growth slowed sharply in April,” said Mike Fratantoni, Chief Economist with the Mortgage Bankers Association.” This data runs counter to the recent decline in initial claims for unemployment insurance, and Wednesday’s ADP data, which showed strong growth in private payrolls.” 

Fratantoni noted while job gains continued in the leisure and hospitality sector, there were actually declines in many of the sectors that showed growth in March, including manufacturing, retail trade, transportation and warehousing, and temporary help services. Local government education employment inched up by 31,000, but remains almost a million jobs below pre-pandemic levels. Construction employment was unchanged in April, with a slight gain for employment in residential building—including contractors. “Again, this doesn’t match the strong growth in housing starts data, which would imply the need for more workers,” he said.

Fratantoni said BLS data do show more workers headed back into the office in April, with 18.3% teleworking due to the pandemic, down from 21% the prior month. “Recent weeks have seen increasing reports that employers are having difficulties filling open positions,” he said. “Additionally, supply chain challenges across the economy are likely impeding the pace of activity and pushing up input costs for many employers. We continue to expect robust job growth and housing demand through the remainder of the year, but this report suggests that the rate of improvement in the job market is going to be much less consistent than other indicators would suggest.”

“A number of factors weighed on the jobs recovery last month, but we suspect weakness is primarily attributable to shortages of both labor and physical inputs limiting activity and thereby hiring,” said Sarah House, Senior Economist with Wells Fargo Securities, Charlotte, N.C. “Yet there were signs of the supply of labor improving, with the participation rate rising to 61.7%. We expect the jobs recovery to get back on track over the next few months, but this report underscores that the Fed will be patient for a while yet when it comes to scaling back accommodation.”

House added the jobs report is a “shining example of why the Fed is taking a more cautious approach to policy these days, waiting to see actual progress rather than taking forecasts to the bank.”

House said a number of factors appear to be tripping up the jobs recovery at present, noting businesses, particularly in goods-producing industries, have challenges securing parts and materials for production. “That has led to some production being temporarily idled, and is likely behind the 18K drop in manufacturing payrolls last month, including a 27K decline in employment at motor vehicles & parts manufacturers, which has been the poster child for parts shortages,” she said. “However, job losses extended beyond manufacturing and suggest the reorientation back toward ‘normal’ will not be smooth.”

Labor has also been a headwind, House said. “[Friday’s] report confirms what many companies have been highlighting—they can’t get the help they need,” she said. “Job openings have made a full recovery and the share of businesses reporting at least one job opening hard to fill rose to another record high in April.”

Odeta Kushi, Deputy Chief Economist with First American Financial Corp., Santa Ana, Calif., said despite the disappoint jobs number, bright spots for housing remain.

“We’ve now regained approximately 63% of the jobs lost at the start of the pandemic,” Kushi said. “As of the first quarter of 2021, low-earning job losses were down 7.8% year over year, while high-earning job losses were down 1.9%. This is one reason why housing has been resilient – this service sector-driven recession has disproportionally hurt younger, lower wage workers who are less likely to be homeowners or home buyers.”

Doug Duncan, Chief Economist with Fannie Mae, Washington, D.C., suggested it’s possible that the report was impacted by seasonal adjustment: “April is typically a robust month for job gains, but the normal seasonal pattern of employment has been greatly disrupted over the past year,” he said.

Duncan also noted residential construction employment (including specialty trade contractors) rose by 3,100, a far slower pace than March’s gain. “At the current pace, these job gains will likely not be enough to help ease supply constraints present in this sector,” he said.

BLS reported April average hourly earnings for all employees on private nonfarm payrolls increased by 21 cents to $30.17, following a decline of 4 cents in March. Average hourly earnings for private-sector production and nonsupervisory employees rose by 20 cents to $25.45.

The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 35.0 hours in April. In manufacturing, the workweek and overtime were both unchanged over the month, at 40.5 hours and 3.2 hours, respectively. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 34.4 hours.