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Economic Research: U.S. Biweekly Economic Roundup: The April Jobs Report Came Up Short

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Economic Research: U.S. Biweekly Economic Roundup: The April Jobs Report Came Up Short

In normal times, an estimate of 266,000 job gains in a month would be good news. But with the U.S. still 8.2 million jobs short of its pre-pandemic high and 10.3 million off the pre-pandemic trend, the April jobs report from the Bureau of Labor Statistics (BLS) was lukewarm. At this rate, the U.S. economy would reach its pre-pandemic full-employment trend in late 2025, at best. Our own forecast is more in line with monthly gains that are about double the April pace (medium path in chart 1), in which the economy gets back to its pre-pandemic path in 2023.

Chart 1

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April's soft report follows a net downward revision of 78,000 the prior two months. Most sentiment data and other private-sector data were signaling a million plus job gains in April. However, as noted in our real-time data publication last week, a population survey in collaboration with the Federal Reserve Bank of Dallas signaled a flatter reading for April, which had tempered our forecast enthusiasm (see "U.S. Real-Time Data: Fertile Ground For A Continued Recovery"). The April job gains were in line with this survey, in contrast to other leading economic data, giving us reason to pay greater attention to its findings later.

While the overall growth was far below expectations, leisure and hospitality continued to make up lost ground by gaining 331,000 jobs, a sign that increased demand has led to significant gains in employment in that sector.

The unemployment rate also went in the wrong direction, to 6.1% from 6.0%, but that's not a surprise. One reason unemployment ticked up even as employment increased was the labor force participation rate was 61.7%, up 0.2 percentage points over the month and the highest since August--albeit 1.6 percentage points lower than in February 2020. As businesses reopen, people who sat on the sidelines rejoin the workforce, optimistic that they'll land jobs this time. Indeed, people finding work (328,000) and even more people entering the workforce (430,000--the largest gain in six months) is a good combination. The unemployment rate for Black Americans rose slightly to 9.7%--the only racial and ethnic group as a whole to experience a worsening metric in April (see chart 2).

Chart 2

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As the supply of workers improves, we anticipate the employment-to-population ratios for both men and women, which are currently well under the full employment level, to improve meaningfully as well. Our calculations suggest there are nearly 4.4 million missing prime-aged workers compared with the pre-pandemic peak employment rate (or 6.3 million compared with the 2000 peak). The small employment-to-population gain was more or less entirely among men in April.

The share of unemployed for "permanent reasons" remains elevated. The number of people without jobs for 27 weeks or more, the so-called long-term unemployed that are most vulnerable to labor market scarring, fell only slightly last month, to 4.2 million, and constitutes just over 42% of total unemployed--a share seen in 2010-2011 following the Great Recession. It appears that a problem of structural unemployment is creeping in, with many job losers in 2020 unsuited for the job openings available.

Chart 3

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Chart 4

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Still, workers have reason to be hopeful. Average weekly hours, a leading indicator for business employment needs, climbed to 35.0 from 34.9 hours. With current worker capacity stretched, businesses will likely need to hire more workers over the next few months. They may also get fatter paychecks. Average hourly earnings surged to 0.7% month over month in April from -0.1% in March, though the 12-month pace slowed to 0.3% year over year from 4.2% year over year because of the pandemic-driven composition effect.

Moreover, the BLS' initial unemployment claims decline in April suggests that jobs market gains will be solid in May and June. The Challenger, Gray & Christmas layoff report was also supportive of the government's unemployment claims trend. Employers announced 22,913 planned layoffs in April, according to the report--down 25% from March's 30,603. April's total was the lowest monthly reading since June 2000 and a whopping 96.6% lower than the 671,129 cuts announced in April 2020, the highest monthly reading on record.

The full mix of data shows only a modest shortfall in hours worked. With current employees working much longer hours at apparently elevated pay, the overall reading, while still soft, isn't as ugly as the headline numbers indicate. Overall, the still-healing jobs market supports the Fed's decision to maintain its very accommodative monetary policy. We expect the Fed to remain on the sideline until sometime in third-quarter 2023, once its criteria for maximum employment and inflation are met.

The Manufacturing Sector Expanded At A Slower Pace

U.S. manufacturing employment fell 18,000, with auto sector employment down 27,000. Component shortages have been well-documented, especially for the auto sector. The Institute for Supply Management Purchasing Managers' Index (PMI) indicates that there are supply chain issues in other manufacturing subsectors as well--so much so that they're constraining capacity to produce and, subsequently, putting a damper on hiring, at least temporarily.

The record-high manufacturing PMI went down unexpectedly to 60.7 in April from 64.7 in March (see chart 5), reflecting expansion of the manufacturing sector at a slightly slower pace. Businesses still find it hard to get timely deliveries and stock their shelves with more inventories. The Supplier Deliveries Index declined slightly to 75 from the record-high 76.6 in March, and the Inventories Index fell to 46.5 from 50.8, dipping into the contraction zone. One consequence of such supply chain pressure is reflected in higher prices. The Price Index went up again, to 89.6 in April from 85.6 in March.

Chart 5

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Consumers Have $2.3 Trillion In Accumulated Excess Savings To Work With

U.S. consumers entered the second quarter with substantial purchasing power despite the unemployment rate, at 6.1%, and the number of unemployed persons, at 9.8 million, both remaining considerably above levels prior to the pandemic (3.5% and 5.7 million, respectively, in February 2020).

The personal savings rate--that is, the portion of disposable income not spent--jumped to 27.6% in March from 13.9% in February (versus 7.5% average in 2019), thanks to the third round of recovery rebates. By our calculations, U.S. households are now sitting on $2.3 trillion in accumulated excess savings (or 10.5% of GDP) (see chart 6). Distributional issues aside, accumulated savings, along with the significant increases in households' net worth (which is not reflected in the personal saving data), support another double-digit increase in inflation-adjusted consumer spending (13.4% quarter over quarter annualized) in the second quarter following a 10.7% increase in the first quarter.

And early signs corroborate our expectations. April new-vehicle sales edged up to 19 million annualized units from their March level of 18.5 million (and the 17 million average in 2019), with both light truck and auto sales rising. The Redbook Index shows that retail sales for the week ended May 1 are 14.2% higher than a year ago. Consumer confidence keeps improving amid better economic conditions, with the Conference Board Consumer Confidence Index jumping to 121.7 in April, 12.7 percentage points higher than in March, and the University of Michigan Consumer Sentiment Index up to 88.3 in April from 84.9 in March.

Core PCE (personal consumption expenditures) inflation rose to 1.8% in March, from 1.4% a month earlier. Price pressure pass-through from businesses to consumers has been limited so far. We expect core PCE inflation to move up to 2.5% in April and May and stay a bit above 2%, on average, the next couple of years, versus the 2012-2019 average of 1.4% (since the Fed announced 2% as its inflation target in 2012).

Chart 6

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Table 1

Review Of U.S. Economic Indicators
Release date Measurements Feb-21 Mar-21 Apr-21 Level year ago Year over year
Labor market
4-week moving average of initial claims 5/6/2021 in 000 805 722 621 4,668
Unemployment rate 5/7/2021 % 6.2 6.0 6.1 14.8
All employees, total nonfarm 5/7/2021 change in '000' 536 770 266 (20,679)
All employees, total private 5/7/2021 change in '000' 622 708 218 (19,731)
Average hourly earnings of all employees, total private 5/7/2021 m/m,% 0.3 (0.1) 0.7 0.3
Average weekly hours of all employees, total private 5/7/2021 (Hours of Work) 34.6 34.9 35.0 34.2
Total nonfarm private payroll employment 5/5/2021 change in '000' 179.6 565.4 742.2 (19,391.8)
Labor force participation rate 5/7/2021 % 61.4 61.5 61.7 60.2
Job openings: total nonfarm 4/6/2021 millions 7.4 7.0
Consumer spending and confidence
Personal income 4/30/2021 m/m,% (7.0) 21.1 29.0
Real disposable personal income 4/30/2021 m/m,% (8.1) 23.0 29.3
Personal Consumption Expenditures 4/30/2021 m/m,% (1.0) 4.2 11.0
Personal saving rate 4/30/2021 % 13.9 27.6 12.9
Total vehicle sales 5/4/2021 millions 16.4 18.5 19.0 9.1
University of Michigan: Consumer Sentiment 4/30/2021 Index 76.8 84.9 89.1
Advance retail sales: retail and food services, total 4/26/2021 m/m,% (2.9) 9.7 27.9
Advance retail sales: retail (excluding food services) 4/26/2021 m/m,% (3.0) 9.3 27.0
Industrial activity
Industrial Production: total index 4/15/2021 m/m,% (2.6) 1.4 1.0
Industrial Production: manufacturing (NAICS) 4/15/2021 m/m,% (3.7) 2.8 3.4
Total business inventories 4/15/2021 m/m,% 0.5 (0.7)
Capacity Utilization: total index 4/15/2021 Index 73.4 74.4 73.6
Current General Business Conditions; Diffusion Index for New York 4/15/2021 Index 12.1 17.4 26.3 (78.2)
Chicago Fed National Activity Index 4/22/2021 Index (1.2) 1.7 (4.5)
Current General Activity; Diffusion Index for Federal Reserve District 3: Philadelphia 4/15/2021 Index 28.7 44.5 50.2 (56.6)
Housing
New privately owned housing units started: total units 4/16/2021 millions 1.46 1.74 1.27
New privately owned housing units authorized in permit-issuing places: total units 4/23/2021 millions 1.72 1.76 1.36
New privately owned housing units completed: total units 4/16/2021 millions 1.35 1.58 1.28
Monthly supply of houses in the U.S. 4/23/2021 Months 4 4 6
Total construction spending 4/1/2021 m/m,% (0.6) 0.2 5.3
External trade
Trade balance: goods and services, balance of payments basis 5/4/2021 billions (70.5) (74.4) (47.2)
Exports of goods and services, balance of payments basis 4/7/2021 billions 187.2 200.3 185.1
Imports of goods and services: balance of payments basis 5/4/2021 billions 258.1 274.5 232.4
Import Price Index (end use): all commodities 4/14/2021 m/m,% 1.3 1.2 6.9
Export Price Index (end use): All Commodities 4/14/2021 m/m,% 1.6 2.1 9.1
Prices
Producer Price Index by commodity: final demand 4/9/2021 m/m,% 0.5 1.0 4.3
Producer Price Index by commodity: final demand: finished goods less foods and energy 4/9/2021 m/m,% 0.2 0.3 1.9
Consumer Price Index for all urban consumers: all items in U.S. city average 4/13/2021 m/m,% 0.4 0.6 2.6
Consumer Price Index for all urban consumers: all items less food and energy in U.S. city average 4/13/2021 m/m,% 0.1 0.3 1.6
Personal Consumption Expenditures: chain-type price index 4/30/2021 m/m,% 0.2 0.5 2.3
Personal Consumption Expenditures excluding food and energy (chain-type price index) 4/30/2021 m/m,% 0.1 0.4 1.8
m/m--Month over month. Last three months selected. Yearly data is either year-over-year change (%) or level value year ago. Total nonfarm private payroll employment is from ADP 1. Data Retrieved on May 7, 2021. Source: Data retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/

Table 2

Economic Release Calendar
Date Release For Forecast Consensus Previous
12-May CPI (%) Apr 0.2 0.2 0.6
CPI (excluding food and energy) (%) Apr 0.3 0.3 0.3
Treasury budget (bil. $) Apr (150) (130) (659.6)
13-May PPI (%) Apr 0.2 0.3 1.0
PPI (excluding food and energy) (%) Apr 0.4 0.4 0.7
Initial claims (000s) Wk of 5/8/21 465 500 498
14-May Retail sales (%) Apr 1.5 1.3 9.8
Retail sales (excluding auto) (%) Apr 1.0 0.9 8.4
Export Price Index (%) Apr 0.7 0.8 2.1
Import Price Index (%) Apr 0.5 0.6 1.2
Industrial Production (%) Apr 0.8 1.1 1.4
Capacity Utilization (%) Apr 75.0 75.2 74.4
Business inventories (%) Mar 0.3 0.3 0.5
University of Michigan Consumer Sentiment (prelim) May 91.3 90.0 88.3
17-May Empire State Index May 20.0 23.0 26.3
18-May Housing starts (mil.) Apr 1.650 1.715 1.739
20-May Philadelphia Fed Index May 35.0 41.9 50.2
Leading indicators (%) Apr 0.9 1.0 1.3
21-May Existing home sales (mil.) Apr 5.950 6.044 6.010

The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.

This report does not constitute a rating action.

U.S. Chief Economist:Beth Ann Bovino, New York + 1 (212) 438 1652;
bethann.bovino@spglobal.com
U.S. Senior Economist:Satyam Panday, New York + 1 (212) 438 6009;
satyam.panday@spglobal.com
Contributor:Shuyang Wu, Beijing
Research Contributor:Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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